This week, the euro and the dollar face off in a dynamic environment shaped by trade tensions, signs of economic slowdown, and conflicting expectations regarding interest rate direction.
With EUR/USD hovering around 1.12 after a technical rebound from early-May lows, markets are assessing whether the latest inflation and consumption data in the U.S., along with comments from Fed Chair Jerome Powell, will be enough to tip the balance toward a range breakout. Meanwhile, in Europe, the European Central Bank continues its dovish shift, and upcoming GDP and industrial production figures could offer clues about the eurozone’s resilience in the face of global protectionism.
This report analyzes the economic, technical, and political context surrounding the world’s most traded currency pair and outlines the potential scenarios traders should monitor in the coming days.
EUR/USD Fundamental Analysis 📈💶💵
In May 2025, EUR/USD is currently shaped by monetary policy divergence, growth differentials, and trade uncertainty in both the U.S. and the eurozone.
United States (USD):
- The Federal Reserve has paused its rate cuts and maintains a cautious stance. Annual inflation slowed to 2.3% in April, slightly below expectations, easing inflation concerns and strengthening bets that the Fed could resume cutting rates later in 2025. The Fed recently left rates unchanged, noting it’s “in no rush” to raise them again as it assesses the impact of tariffs.
- In terms of growth, the U.S. economy cooled significantly: preliminary estimates suggest 1Q GDP contracted slightly, attributed in part to trade disputes (companies front-loaded imports ahead of new tariffs, weighing on GDP).
- Politically, the Trump administration has escalated trade protectionism, imposing 20% tariffs on European goods and sharply increasing tariffs on Chinese imports, which has triggered global uncertainty. However, a partial tariff truce with China announced in May — with mutual tariff reductions — has boosted risk appetite, weakened the dollar, and supported the euro.
Eurozone (EUR):
- The eurozone economy showed initial resilience: 1Q GDP grew +0.4% QoQ, beating forecasts (+0.2%) and notably outperforming the U.S. in the same period. That said, this rebound may be short-lived, as the ongoing trade war threatens to impact exports and investment.
- Inflation remains well-contained: for example, Germany’s annual CPI was around 2.1–2.2% in April, a multi-month low. Weakening inflation and growth prompted the ECB to resume stimulus, cutting its deposit rate to 2.25% in April (the seventh 25 bp cut in a year), declaring that inflation is now “essentially met” and that trade risks may further slow the economy. Several ECB officials hint at more cuts by summer, and markets expect a potential cut to 2.00% at the June 5 meeting.
- In short, the fundamental backdrop pits a Fed on hold (with dovish bias) against a clearly accommodative ECB, while political uncertainty — especially around U.S. trade policy — remains a key factor for EUR/USD direction.
EUR/USD Technical Analysis 📊 (Daily Chart)
The EUR/USD daily chart suggests a consolidation phase following the recent correction, with well-defined support and resistance levels:
- Recent trend: The pair dropped from a multi-year high near 1.1575 to a May low of ~1.1065, breaking the previous bullish streak and entering a short-term downward channel. However, recent sessions show a rebound from the 1.10–1.11 zone, with the pair now regaining ground toward 1.12, which now acts as immediate resistance.
- Support & resistance: Key supports lie between 1.1100 and 1.1060, the latter aligning with the 50-day moving average, where the pair found a floor. A break below 1.1060 would confirm a new short-term low and expose the psychological 1.1000 level. To the upside, the 1.1250–1.1275 range is the most relevant short-term resistance; it includes recent highs and a descending trendline. A clean break above 1.1275 would signal a breakout and could extend gains toward 1.1400. Above that, 1.15 becomes a medium-term ceiling. Below 1.10, the next meaningful support lies at 1.0900 (year-to-date lows).
- Indicators: Oscillators show moderate momentum. The RSI (14) sits near 50, suggesting neutral momentum. The MACD has flattened out, with no clear crossovers, reflecting loss of direction in the recent correction. This setup implies further consolidation is likely, pending a fundamental catalyst. Overall, the technical bias is indecisive to slightly neutral — a break above 1.1250 would revive bullish momentum, while a drop below 1.1060 would bring bearish pressure back into play.
Price Outlook for the Euro-dollar(1 Week and 1 Month) 🤔💭
- 1-Week Horizon: Analyst consensus favors range-bound trading around 1.12, unless a surprise catalyst emerges.
- ING forecasts stabilization around 1.1200, with other banks like UOB Group suggesting recent momentum above 1.1225 signals consolidation, not a sustained breakout.
- Most analysts see the pair stuck in a broader 1.10–1.15 range, reflecting offsetting forces from both central banks.
- 1-Month Horizon: Opinions are more varied.
- Some analysts, like those at Danske Bank, expect EUR/USD to find buyers on dips, especially if U.S. economic data weakens further.
- Societe Generale projects gradual euro gains, targeting 1.17 by year-end, implying upside in the next few weeks.
- J.P. Morgan also maintains a bullish bias, seeing the uptrend intact as long as the pair stays above 1.1200.
Conversely, Commonwealth Bank of Australia (CBA) anticipates short-term USD strength, projecting a 2–3% bounce in the dollar index — which could pull EUR/USD down toward the lower 1.10s. Still, CBA acknowledges this would likely be temporary, and that U.S. trade policy missteps have “permanently damaged” the dollar’s haven status.
In summary, the 1-month outlook reflects balanced risks, with most forecasts centered around 1.12–1.13, barring new economic shocks or geopolitical developments.
Final Summary (For Short-Term Traders) 🎯
EUR/USD is at a key technical juncture, trading near the middle of a well-defined range. Key levels:
- Upside: A break above 1.1250–1.1275 would signal strength, potentially extending the rally toward 1.1350–1.1400. This would likely require softer U.S. data (e.g., weak retail sales) or a dovish tone from Powell. Optimistic trade news could also boost the euro.
- Downside: Failure to clear resistance, combined with strong U.S. data or hawkish Fed commentary, could see the pair fall back toward 1.1150, with a break below 1.1060 exposing 1.1000. Renewed geopolitical risk or tariff headlines could also support the dollar as a safe haven.
Main drivers to watch next week:
- U.S. Retail Sales (Thursday) – Weak = USD ↓ / EUR ↑
- U.S. PPI and Powell Speech (Thursday) – Dovish Powell = USD ↓
- Eurozone GDP (Thursday) – Positive surprise = EUR ↑
- Consumer Sentiment (Friday) – Weak = USD ↓
Conclusion: EUR/USD is ready to move
EUR/USD is consolidating, awaiting a catalyst. Short-term traders should prepare for breakout scenarios above 1.1275 or below 1.1060. Stay agile, monitor key data, and use defined risk parameters. The pair is likely to remain volatile but range-bound unless something shifts the macro narrative decisively.