EUR/USD Hits Multi-Month Highs: Has the Dollar Lost Control Amid Recession Fears and Trade War Chaos?
EUR/USD Defies Rate Cut as Euro Roars Above 1.0870
The past week marked a rare and aggressive breakout for the EUR/USD pair, climbing over 4% to reach 1.0870—levels not seen in over four months. What makes the move striking is that it came in direct opposition to a dovish European Central Bank tone. The ECB sliced its benchmark refinancing rate by 25 basis points and trimmed its 2025 growth outlook, actions which typically weigh on the Euro. Yet instead of falling, the Euro soared. This was not just about central banks—it was a direct reaction to deepening weakness in the U.S. economy and spiraling policy instability out of Washington.
Traders brushed off the ECB’s softness because the Federal Reserve’s positioning looks increasingly chaotic. The latest U.S. labor data offered a cocktail of weakness. The unemployment rate unexpectedly rose from 4.0% to 4.1%, wage growth was subdued at just 0.3% month-over-month, and job creation came in soft. All of this adds fuel to the Atlanta Fed’s latest GDPNow tracker forecasting a contraction of -2.4% annualized. That kind of deterioration isn’t noise—it’s a flashing red warning sign. Combined with fresh protectionist tariffs aimed at China, Mexico, and even Europe, it’s little wonder that the greenback lost control and the Euro found its footing.
Dollar Collapse Unfolds as Trade Wars Erode Confidence
The broader backdrop for the EUR/USD rally is a macro unraveling in the U.S. dollar. The U.S. Dollar Index just posted its largest weekly drop in over two and a half years. For technical traders, it was a signal that the long-term uptrend has finally broken down. The greenback plummeted to fresh four-month lows, closing well below its 100-day and 200-day moving averages. Normally, such a collapse in the dollar would align with stronger risk sentiment—but this time the world isn’t chasing risk, it’s fleeing uncertainty.
The U.S. is currently locked in multi-front trade spats with China, Mexico, and Canada. Despite vague concessions, there is no comprehensive agreement in sight, and fresh reciprocal tariffs are set to kick in April. These aren’t minor policy moves—they’re hitting imports, inflating costs, and damaging export demand. As businesses pull back and institutions brace for more erratic fiscal maneuvering, the dollar’s role as a safe haven is being rapidly eroded.
Euro Strength Rooted in Fiscal Expansion and Sentiment Shift
The Euro’s surge isn’t just a dollar story—it’s also about a structural shift in Europe’s fiscal posture. The German government shocked markets by announcing an aggressive fiscal expansion, including bond-financed infrastructure and energy spending. That development rewired investor sentiment. According to Danske Bank and ING, this represents a potential re-rating of the Euro based on forward-looking growth expectations.
It’s also no coincidence that the Euro advanced despite a cut from the ECB. The message from President Lagarde was nuanced—the ECB is easing, but it’s not in a race to the bottom. The statement that policy is now “much less restrictive” implied that further cuts may pause. That pause, combined with the German stimulus and global capital outflows from the dollar, is producing the rare setup where a dovish ECB isn’t enough to slow down Euro strength.
Technical Outlook: Bulls Charge, But 1.1000 Looms
While the macro environment favors the Euro for now, the EUR/USD chart is beginning to flash potential exhaustion. Price surged past the 1.0800 handle and closed above its 50-day moving average, but two consecutive daily candles on March 7 and 8 hinted at exhaustion. Both printed upper wicks resembling bearish rejection. Momentum has slowed just beneath the psychologically significant 1.1000 level—where the pair topped in late November before reversing sharply.
Resistance between 1.0960 and 1.1000 is heavily stacked, with multiple inflection points seen over the last year. Moreover, the moving average structure remains unsupportive of sustained upside: the 50-day remains below the 100-day, creating a bearish crossover that trend-followers use as a red flag. This suggests caution for late-entry bulls. If the pair fails to break and hold above 1.1000, we could see a pullback toward 1.0800 or even the 1.0725 level where the breakout began.
Key Event Risk: U.S. CPI Could Make or Break This Rally
The next test for EUR/USD bulls will come fast—U.S. CPI lands on Wednesday, with PPI and Michigan sentiment following later in the week. Last month’s year-over-year inflation held stubbornly at 3%, well above the Fed’s 2% target. If this week’s CPI remains hot, the market will be forced to reprice the pace and depth of rate cuts. Currently, the odds for a rate cut by June remain high, but sticky inflation could delay that timeline, helping the dollar stabilize and capping Euro gains.
That said, if inflation disappoints and confirms weakness in both employment and consumption, the dollar’s fall could accelerate. For EUR/USD, that means a clean breakout above 1.1000 with next targets at 1.1075 and 1.1140.
Why This Rally Defied the ECB's Cut
It’s worth underscoring just how unusual it is for the EUR/USD to rally more than 4% in a week where the ECB actually cuts rates. That move only makes sense in the broader context of collapsing confidence in U.S. policy. The trade war, fiscal chaos, weakening jobs data, and a clear loss of central bank leadership have all contributed to the market seeing the dollar not just as overbought—but as no longer safe.
Meanwhile, the Euro is increasingly seen as the better alternative—even if imperfect—because Europe is stepping into a pro-growth fiscal gear. If Germany’s stimulus unlocks similar moves in France or the Netherlands, the perception of European stagnation will fade quickly, pushing capital into the region’s assets. That inflow dynamic could become self-reinforcing, particularly if Eurozone bond yields stay stable or widen the spread advantage over the U.S. Treasury curve, which has been flattening aggressively.
Positioning and Sentiment: Are Institutions Buying EUR/USD or Just Unloading USD?
CFTC data shows a marked increase in long Euro positioning, but perhaps the more important dynamic is the unwinding of institutional dollar longs. Risk-parity strategies, real money accounts, and macro funds appear to be rotating capital away from dollar exposure, fearing not just recession but instability in policy execution. Add to that the growing expectation of more Fed cuts versus a pause from the ECB, and you get a macro divergence that keeps favoring the Euro—at least near term.
As of now, the pair is sitting just under a crucial inflection point. If sentiment holds through this week’s U.S. data barrage, there’s a real shot EUR/USD breaks above 1.1000 and challenges late-2023 highs.
Final Verdict on EUR/USD – Is the Bull Run Real or Exhausted?
After digesting all macro, technical, and sentiment factors, EUR/USD at 1.0870 is a bullish setup built on very shaky ground. Yes, the momentum has been explosive, and yes, the dollar is under enormous pressure. But the chart is nearing heavy resistance and moving averages haven’t confirmed the breakout. This means risk-reward for fresh longs is deteriorating quickly.
If U.S. CPI or PPI comes in hot, the Fed may have to hold longer than markets expect, giving the dollar a reason to bounce. That could drive EUR/USD back to 1.0750. But if inflation data confirms a weakening economy and Fed rate cuts stay on track for mid-2025, the rally could extend to 1.1100 in the coming weeks.
At these levels, the pair is not a buy or a sell blindly. It’s a hold for existing longs, with tight risk management. New positions should wait for confirmation of a break or rejection at 1.1000. Everything now hinges on whether U.S. data gives the dollar a lifeline—or a final push off the cliff.
Live price updates for EUR/USD available at this real-time chart
