The Euro Is Perplexed by the Rally

The U.S. Dollar Index is down 1% to 98.39 points, while the EURUSD has climbed 0.9% to 1.14970, as tariff tensions between the United States and China ease. With both sides expressing willingness to seek compromise, markets are taking a breather from the volatility triggered by trade policy uncertainty. In particular, the absence of major sell-offs in U.S. Treasuries has helped stabilise 10-year yields, which in turn allowed the EURUSD to consolidate.

However, fresh pressure on the Dollar came from President Donald Trump, who launched a sharp attack on Federal Reserve (Fed) Chair Jerome Powell following Powell’s comments supporting a hold on interest rates due to ongoing trade uncertainties. Trump, reportedly infuriated, publicly questioned Powell’s competence—calling him “Mr. Too Late” and “a major loser”—and demanded immediate rate cuts to stimulate the economy.

The Dollar weakened significantly in response, shedding 1.59% since the Monday open. The EURUSD briefly spiked to 1.15730, its highest level since November 2021, before pausing amid signs of overbought conditions and lingering optimism around U.S.-China trade negotiations.

Once again, large institutional investors appear to have timed the market shrewdly. Two weeks ago, they bought $14.6 million worth of shares in the WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU), selling $6.5 million of that position last week—just before Trump’s remarks.

While the Dollar's near-term correction appears to have been disrupted by political turmoil, investors are closely watching for signs of Powell’s potential resignation—an unlikely but not impossible scenario that adds further uncertainty. A forced exit could undermine the market's confidence in the Fed's independence, weakening the Greenback’s longer-term outlook. However, it might also compress the scope of any rebound, making the expected 5% Dollar recovery—bringing the EURUSD down to the 1.09000–1.09500 range—less attractive from a risk-reward standpoint.

This week’s macroeconomic calendar is relatively light, with the April PMI reports for manufacturing and services due on Wednesday. Analysts expect further softening in business activity, potentially reinforcing Trump’s argument for lower rates. Powell’s response will be closely watched. He may adopt a more dovish tone if the data disappoints, but could also stand firm to defend the Fed’s position.

From a technical perspective, the EURUSD has exhausted all significant upside targets and remains in overbought territory. Any additional gains are likely to be news-driven rather than trend-based. On the downside, the pair faces several key support levels, with initial targets at 1.11000–1.11500, and deeper retracement levels at 1.06000–1.07000. A decisive break below 1.14200–1.14400 would be required to trigger a more sustained pullback.