The Euro (EUR) is currently trading just above the 1.1700 mark against the Dollar (USD) as Thursday unfolds, reflecting a decline of approximately 0.65% for the week. Market participants appear to be adopting a wait-and-see approach, particularly with a pivotal two-day summit set to take place between US President Donald Trump and Chinese President Xi Jinping. Additionally, investors are keenly anticipating a speech later in the day from European Central Bank (ECB) President Christine Lagarde.
The US Dollar is demonstrating strength this week, bolstered by safe-haven flows in light of continuing tensions in Iran and growing speculations that the US Federal Reserve may be forced to raise interest rates at the end of 2026 or early 2027. These expectations are fueled by rising energy prices, which are intensifying inflationary pressures.
Recent data has underscored these inflation concerns, notably the US Producer Prices Index (PPI) which indicated a 1.4% increase in April. This followed a more modest rise of 0.7% in March, pushing the year-on-year rate to 6%, the highest since December 2023. These figures come on the heels of robust Consumer Price Index (CPI) data and add urgency for the Federal Reserve to resume discussions on interest rate hikes.
Market sentiment has shifted, with futures now indicating a 31% probability of a rate hike in December, up from 22% just a week prior. This shift has led to a rally in US Treasury yields and a subsequent boost for the Dollar throughout the week.
In the Eurozone, inflationary trends are also evident, particularly in Spain where the Harmonised Index of Consumer Prices (HICP) revealed a 3.5% year-on-year increase in April, slightly up from 3.4% in March. Attention is now focused on Christine Lagarde’s upcoming address in Aachen, Germany, where she may offer insights into the ECB’s plans regarding potential interest rate hikes, with markets speculating about a tightening move possibly taking place in June or July.
From a technical standpoint, the EUR/USD pair maintains a bearish near-term outlook. The 4-hour chart illustrates that while the Moving Average Convergence Divergence (MACD) indicator remains in negative territory, recent adjustments indicate a slight reduction in bearish momentum. The Relative Strength Index (RSI) is also situated below the midline, reinforcing the idea of ongoing downside pressure.
On the upside, potential resistance is anticipated around a recent high of 1.1740, as well as the upper boundary of the previous three weeks’ trading range near 1.1795, and further at April’s peak of 1.1851. Conversely, the 1.1700 level is currently acting as a support barrier, helping to deter bearish sentiment from breaching the critical support zone located between 1.1645 and 1.1675, which has previously absorbed downward pressure on multiple occasions in April. A drop below these levels could bring attention to April’s low, approximately 1.1510, leading to further market volatility.
