EUR/USD declined from an intraday high of 1.0530 to around 1.0460, influenced by a strong recovery in the US Dollar and concerns about potential political instability in Germany. The US Dollar Index rebounded to 106.40 following a drop to 106.10.
The US S&P Global PMI report indicated a slower rise in private business activity, with the Composite PMI falling to 50.4. A notable drop in the Services PMI to 49.7 was observed, while the Manufacturing PMI improved to 51.6.
Market expectations for a Federal Reserve interest rate cut in June rose to 63.5%. Weakness in the Euro resulted from Germany’s fractured political landscape, despite CDU leader Friedrich Merz securing majority votes.
German IFO data showed the IFO Business Climate at 85.2, below expectations. However, IFO Expectations improved to 85.4.
The 50-day Exponential Moving Average offers support for EUR/USD around 1.0437. Key support is at the February 10 low of 1.0285, while resistance stands at the December 6 high of 1.0630.
The recent movement of EUR/USD suggests that traders are taking a cautious stance as the US Dollar regains its strength. A retreat from 1.0530 to 1.0460 came as confidence in the greenback grew, supported by a broader market reassessment of economic conditions in the United States. Factors such as political concerns in Germany added further weight on the Euro, leaving it vulnerable. Meanwhile, the US Dollar Index’s rebound above 106.40 suggests investors are still leaning towards dollar strength, particularly following softer US data.
The drop in the US S&P Global PMI’s Composite measure to 50.4 indicates business activity remains stagnant. A slip in the Services PMI below 50 is particularly striking, as it signals contraction in a key component of the economy. In contrast, an uptick in the Manufacturing PMI to 51.6 suggests this sector is holding up better despite broader economic concerns. The reaction in interest rate expectations has been swift, with traders now assigning a higher probability—over 63%—that the Federal Reserve will cut rates in June.
Germany’s political worries have kept the Euro under pressure. Even though Friedrich managed to secure a majority in his party, broader fractures in the German political system remain. This uncertainty, paired with weaker-than-expected IFO Business Climate numbers at 85.2, has contributed to a lack of conviction in the Euro. However, it is worth noting that future expectations measured by the IFO did improve slightly.
For those watching EUR/USD, technical price levels remain important in the coming sessions. The 50-day Exponential Moving Average is providing a floor at 1.0437, meaning we may see buying interest emerge at this level. If the pair moves lower, the next key level to monitor would be the February 10 low at 1.0285. On the upside, the December 6 high of 1.0630 remains the next level traders would target should momentum shift in the Euro’s favour.
Decisions in the weeks ahead will be shaped by incoming economic data and shifts in risk perceptions. With political concerns lingering and market sentiment fluctuating, each development could push the balance one way or the other.
