EUR/USD Soars as Trump Resurfaces, Fed’s Moves in Focus

EUR/USD Soars as Trump Resurfaces, Fed's Moves in Focus

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This week witnessed a dramatic turnaround for the EUR/USD currency pair, which surged to a one-month high of 1.0470 on Friday. This marks an impressive increase of over 240 pips from the previous week’s closing price.

It’s important to note that this rise began last week, following a multi-year low of 1.0176 recorded on Monday, January 13. However, the currency pair had not gained enough ground to challenge the prevailing negative trend, a situation that has now changed.

Why Did EUR/USD Surge Following Trump’s Inauguration?

Monday saw the most substantial increase, with an approximate gain of 150 pips, coinciding with Donald Trump’s inauguration, which resulted in a broad decline of the US Dollar on the Forex market. Contrary to some expectations, the new president did not implement an increase in tariffs upon entering the Oval Office.

Later in the week, he touched upon the subject of tariffs yet appeared to have no urgency to take action, continuously putting pressure on the Dollar. In fact, tariffs are seen as potentially inflationary, and their non-increase has heightened the chances of the Federal Reserve opting for more rate cuts, which in turn is detrimental to the Dollar.

The resurgence of the EUR/USD on Friday, after a period of consolidation between Tuesday and Thursday, can also be attributed to expectations surrounding the Fed’s rate cuts. During a remote address at the World Economic Forum in Davos, Trump indicated that he would demand a reduction in rates, though he did not mention the Fed by name.

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According to media reports, the president also expressed a preference not to impose tariffs on China, further supporting the notion of additional rate cuts by the Fed.

The Fate of EUR/USD Hinges on Next Week’s Fed Meeting

Next week, attention will again shift to the US central bank as the Federal Open Market Committee (FOMC) holds its first meeting of the year in 2025. The CME’s FedWatch tool indicates a 99% probability for maintaining the current rate.

Nonetheless, considering Trump’s restraint on tariff increases, his pressure for rate cuts, and inflation data from December that fell short of expectations, the stars seem to align for the Fed to adopt a less hawkish tone than it did at its last meeting.

If expectations for rate cuts throughout the rest of the year are significantly boosted, the market can anticipate a continuation of the Dollar’s correction and an ongoing rally for the EUR/USD.

EUR/USD Registers Positive Signals, Bullish Reversal Underway

From a technical perspective, this week’s spikes have generated several bullish signals on the EUR/USD chart, beginning with the breach of multiple downward trendlines, indicated in red on the accompanying chart.

The EUR/USD has also surpassed significant round levels of 1.03 and 1.04, in addition to its 50-day moving average. Now, the crucial psychological barrier of 1.05 stands as the next bullish target, followed by 1.06 and the peak of December 6th at 1.0630.

If a retreat occurs, the 1.04 area will serve as the first potential support to watch, followed by 1.0350.

After a plunge of approximately 1000 pips between late September 2024 and mid-January 2025, the outlook is brightening for the EUR/USD, both fundamentally and technically, contradicting predictions of a swift return to parity.

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Nonetheless, only after the Fed’s meeting next week will clarity emerge on whether this movement will endure or if further weakness in the most traded currency pair on the Forex market is expected.

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