The EUR/USD market has calmed after significant volatility earlier this month, with one-month traded volatility decreasing from 9% to 7% and one-week volatility dropping below 8% from over 11%. Stability in US asset markets and a reassessment of eurozone growth expectations contributed to this trend, with ECB’s easing cycle rate projected at 1.75-2.00%.
Concerns about upcoming tariff news may lead to an underestimation of risk for the euro, particularly as the EU holds a considerable trade surplus with the US. Predictions suggest EUR/USD could reach 1.05 by the end of the second quarter, influenced by tariff developments. Support levels are noted at 1.0765/70, with potential movement to 1.0730 if the pound depreciates.
Market Stabilization And Volatility
The market has undoubtedly entered a period of relative steadiness following the volatility experienced at the beginning of the month. With one-month traded volatility retreating from 9% to 7% and one-week measures dipping below 8% from a peak above 11%, there’s clearly less immediate tension in currency movements. This calming effect largely stems from firmer footing in US asset markets, alongside a reconsideration of economic expectations within the eurozone. That reconsideration, in turn, is tied to prevailing estimates of rate adjustments from the European Central Bank, which currently suggest a cumulative easing of between 1.75% and 2.00%.
However, what may not be fully reflected in market pricing is the potential for new tariff decisions to rattle expectations—especially given the structural trade position between Europe and the US. Historically, Washington has scrutinised the EU’s substantial trade surplus, and that scrutiny has, at times, translated into policy shifts. If such measures are announced, traders will need to be nimble, as underestimating the potential downside pressure on the euro could prove costly. Forecasts pointing towards 1.05 by the close of the second quarter rest heavily on how this unfolds.
For those tracking key levels, 1.0765/70 stands out as the nearest support. A breach there might set the stage for an approach towards 1.0730, though that would likely be influenced by movements elsewhere—particularly in sterling. The pound’s posture will be vital. Should it weaken, the euro may follow.
Monitoring Volatility And External Risks
As the weeks progress, traders will need to assess volatility pricing carefully, ensuring that any fresh positioning accounts for the possibility of an abrupt shift. Those who anchor too firmly to the current sense of calm could find themselves exposed if external risks take hold.
