Insights 
VT 
EUR/USD remains strong near 1.1250, influenced by Moody’s credit downgrade of the US Sovereign Credit, which impacts the US Dollar. The US Dollar Index continues to decline, hovering near 100.00. Moody’s downgrade from Aaa to Aa1 reflects concerns over the US’s $36 trillion government debt, potentially increasing the US’s capital costs.
There is unease about the US debt potentially worsening, exacerbated by financial bills adding trillions to the debt. The US Dollar’s strength is questioned due to the inconsistent tariff policies from Washington. Tensions between the US and China also impact the Dollar, with China criticising US trade actions as discriminatory.
Euro Resilience Aids EUR/USD
EUR/USD’s strength is also aided by Euro resilience, despite inflation risks within the European Union. The EU’s recent forecast anticipates inflation reaching the target of 2% by mid-year. The European Central Bank warns of inflation risks, with officials expressing concerns about the downside. The upcoming HCOB PMI data could further influence market trends, with expectations of growth.
Current currency changes show Euro strength, particularly against the Australian Dollar. Technically, EUR/USD’s outlook is optimistic, with potential resistance at 1.1425 and support at 1.1000. The 20-day EMA remains a critical level, with the RSI indicating trader indecision.
With the pair trading comfortably above 1.1250, recent price action shows that markets continue to process the implications of the US’s lowered credit rating, Moody’s shift from Aaa to Aa1 serving as both a symbolic and functional change. It’s not simply a number—it introduces new pressures, particularly higher expected borrowing costs for the US. The $36 trillion debt pile is no longer just a backdrop; markets are now deciding how much of a burden they’re willing to overlook, and clearly, patience is thinning.
As the US Dollar Index drifts closer to 100, the ripple effects are already unfolding across asset classes. While this level does not mark any technical collapse, it’s a clear break from recent resilience. The inescapable conclusion is that global confidence in the greenback’s stability is starting to show strain. Of course, this isn’t just about Moody’s, though it adds a new layer. Washington’s shifting stance on tariffs, combined with erratic fiscal expansions, is adding volatility, and this is being priced in.
Trade Policy Uncertainty
Trade policy uncertainty has compounded the problem. Tariffs no longer function as a long-term lever; rather, they’re acting as short-term distractions. China has responded firmly, adding tension and giving markets yet another factor to account for. The US position risks becoming unstable, and that affects broader Dollar sentiment well beyond trade flows.
On the other side of the equation, the Euro appears to be holding its ground better than expected. Resilience in the Eurozone is partly underpinned by medium-term inflation expectations. The European Commission’s projection of reaching the 2% target by summer is lending credibility and confidence to the single currency. While inflation hasn’t been vanquished, policymaker coherence and consistent communication have helped the Euro escape the kind of doubt now hovering over the Dollar.
The European Central Bank has also struck a more balanced tone. Its concern over downside inflation risks remains, but it’s not leading to erratic messaging. This type of clarity matters when trying to forecast currency strength. We’ll be watching closely as the HCOB PMI numbers come in. Assuming they match estimates and point to expansion, it would offer further support to the Euro, particularly as sentiment data has been more supportive than expected in some member states.
Market participants focused on technicals will have noticed EUR/USD carving out a coherent short-term trend. The 1.1425 level appears to be the next major test; if it breaks, the technical picture could accelerate. For now, the 20-day exponential moving average is the barometer of momentum. Traders following this level may want to observe how prices react around there before taking on additional exposure.
Price oscillations around this range suggest traders are still digesting the narrative – the Relative Strength Index near neutral hints at a wait-and-see attitude. There’s clearly not strong momentum either way, suggesting potential for sharp moves when conviction returns. Until then, acting on overleveraged positions seems unwise, particularly when headline risk remains elevated.
One area that may offer better short-term movement for pairs traders is EUR/AUD, where the Euro is asserting dominance. This underscores that the Euro’s strength isn’t limited to its movement against the Dollar. Rising confidence in EU forecasts and the potential for better regional data are driving capital into the currency selectively.
In the weeks ahead, close attention must be paid to debates around US fiscal policy and any shifts in messaging from Frankfurt. We should treat the ECB’s inflation concerns as more than noise; if these risks materialise, the supportive narrative for the Euro might lose steam. However, for now, the pair remains buoyed by combined Dollar weakness and moderate Euro support. That dynamic can persist, provided incoming data doesn’t jolt expectations violently in either direction.
