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EUR/USD recovers to near 1.1300 after the US Dollar retreats from a near one-month high. The currency pair bounces back after dipping to around 1.1200 earlier in North American trading hours.
The US Dollar Index, which measures the Greenback’s value against six major currencies, corrects to near 100.40 from a recent peak of 100.85. Eyes are on the US-China trade talks set for Saturday.
China stands as the second-largest market for US imports, and the trade tensions have contributed to lowering global economic growth forecasts. The White House remains optimistic about a potential de-escalation of tariffs between the US and China.
Meanwhile, the Euro gains momentum despite concerns over the economic outlook and statements from ECB officials about ongoing disinflation. ECB Governor Rehn emphasised the need for potential rate cuts if growth forecasts confirm a downturn.
In technical analysis, EUR/USD finds support near the 20-day Exponential Moving Average around 1.1250. The 14-day Relative Strength Index signals that the bullish momentum is pausing for now.
Federal Reserve’s Stance and Rate Decisions
For the Federal Reserve, recent interest rate decisions kept rates steady at 4.5%, aligning with expectations. The policy aims at balancing inflation and employment, with future outlooks being either hawkish or dovish.
What we’re seeing here is a short-term reversal in EUR/USD, rebounding near the 1.1300 level after slipping closer to 1.1200 earlier in the North American session. That dip turned out to be brief, with the pair clawing back most of its losses as the US Dollar pulled back from its monthly high. While this latest bounce gives the impression of renewed strength in the euro, much of it comes down to short-term positioning rather than a longer-term change in sentiment.
The US Dollar Index eased towards 100.40, having faced some selling pressure after reaching 100.85 recently. Part of this move stems from positioning ahead of the weekend trade talks between the United States and China. These discussions hold weight—not because of what might be agreed upon immediately—but because expectations around tariffs and bilateral relations still influence broader risk sentiment. There’s been upbeat commentary from Washington, which is encouraging risk-on trades for now, dragging the dollar lower and prompting profit-taking on recent long positions.
Meanwhile, euro bulls appear to have latched onto the currency despite some discouraging signs out of the eurozone. Messaging from the ECB, particularly Rehn’s remarks, pointed clearly to the door being left open for policy manoeuvring—especially in the case that incoming data shows lacklustre growth. Rate cuts haven’t been committed to outright, but the market isn’t ignoring that they’re being telegraphed. Traders seem content to lean on the idea that a move won’t happen suddenly, though inflation continues to undershoot, and several indicators across manufacturing and sentiment surveys have stalled.
Technically, EUR/USD is bouncing off its 20-day Exponential Moving Average around the 1.1250 level. That’s often a zone that short-term traders watch closely. The fact that it held overnight lends credibility to the current climb. But on the momentum side of things, the 14-day RSI now indicates that the bullish phase may be entering a cooling-off period. It’s not necessarily reversing—it’s pausing. That might make directional commitments less attractive ahead of clearer catalysts.
Across the Atlantic, the Fed continues to sit tight. We know they’re walking a fine line—balancing disinflation on one side and a still-solid labour market on the other. With rates held at 4.5%, markets are showing little urgency to reprice expectations in either direction. Any hawkish tilt, or lean towards tightening again, would jolt USD strength briefly. Conversely, a move towards easing hinges more on hard data than the current tone of Fed communication.
From a strategy perspective, this current bounce in EUR/USD will likely remain vulnerable to outside headlines, particularly anything tied to trade policy or upcoming inflation releases. Risk appetite can change fast, so it’s worth being nimble. These levels could attract stop-driven rallies above 1.1300, but any move back below 1.1250 might open the way for retests of prior support zones. Watching how implied volatilities behave around these events could offer direction for structuring positions, particularly when looking at near-expiry options.
