Give It a Reason. EURUSD Is Ready to Dive

The U.S. Dollar Index (DXY) is down by 0.36% this week to 99.11 points, while the EURUSD has risen by 0.26% to 1.13930. The final obstacle to further strengthening of the Greenback has been removed. Although the U.S. President denied any intention to dismiss Federal Reserve (Fed) Chair Jerome Powell, he expressed a desire to gently steer him towards cutting interest rates.

This pressure previously led the EURUSD to rally by 1.59% to 1.15730 last week. However, following the removal of this pressure, the gains were quickly erased, and the pair returned to mid-April levels. In the background, the United States and China have taken steps to de-escalate trade tensions. Both sides appear to recognise the economic risks of continued tariff escalation and have made concessions: the U.S. reduced tariffs on electronic imports from China to 20% from 145%, while China removed tariffs on U.S. semiconductor imports. The U.S. is reportedly preparing to significantly lower tariffs on car parts, with Chinese imports expected to be included. China is now expected to respond with a reciprocal move. Gradually, both sides are likely to reduce tariffs to more economically sustainable levels. Investors are pricing in this progress, contributing to a swift recovery of asset prices from April losses. This trend may become a dominant theme in the months ahead.

For the EURUSD, this scenario suggests a potential correction to the 1.11000–1.11500 range as a primary target, with a possible—though less likely—decline towards 1.06000–1.07000.

Large investors appear to have adopted a 'wait and hold' strategy. The WisdomTree Bloomberg US Dollar Bullish Fund (USDU) reported neutral flows last week. Many investors had entered short Dollar positions around the 1.09000 level, which remain in profit. Some of these positions have been subject to profit-taking.

This week brings several key macroeconomic data releases, particularly on Wednesday. The United States will publish its first estimate for Q1 2025 GDP, with consensus expectations pointing to a slowdown to 0.4% quarter-on-quarter from 2.4%. ADP’s Nonfarm Payrolls report for April is expected to show a decline in job creation to 123,000 from 155,000. The PCE Index for March will also be released, with expectations of further easing in inflation.

Taken together, the latest macroeconomic data point to a cooling U.S. economy, which would typically support further weakening of the Dollar. However, market reactions may vary in light of progress on trade de-escalation, suggesting that a strengthening of the Greenback remains a real possibility.

The U.S. labour market report for April will conclude the week’s major macroeconomic updates. Wall Street analysts anticipate some moderation in the data, though current information is insufficient for firm predictions.

From a technical perspective, there is little justification for further upward movement in the EURUSD. All near-term upside targets have been achieved, and the pair remains heavily overbought. Downside targets lie at 1.11000–1.11500, and further down at 1.06000–1.07000. A bearish signal emerged last week when the pair broke below the key support zone at 1.14200–1.14400 and retested this level on Monday. The pair appears poised to decline, merely awaiting a clear catalyst.