EUR/USD Breaks 1.08 – Is This the Start of a Bullish Breakout or a Short-Term Rally?

EUR/USD Bulls Take Control as ECB and Fed Diverge – Can the Rally Extend to 1.10?

Euro Surges as ECB Cuts Rates, But Is a More Hawkish Stance Emerging?

The EUR/USD pair has gained significant traction, breaking above 1.08 and reaching a high of 1.0845 following the European Central Bank’s (ECB) much-anticipated 25-basis-point rate cut. While this move was largely priced in, what caught traders’ attention was the central bank’s tone. ECB President Christine Lagarde signaled that while easing cycles have started, policymakers remain cautious amid fiscal stimulus in the Eurozone, particularly Germany’s newly approved €500 billion infrastructure fund. This move is expected to drive inflation higher, limiting the scope for aggressive rate cuts.

With Germany’s 10-year bond yield soaring nearly 40 basis points, the largest single-day jump in 25 years, investors interpreted this as a sign that the ECB may not be as dovish as previously assumed. This repricing of European bond yields narrowed the rate differential with US Treasuries, providing further support for the euro against the dollar.

The technical picture also reinforces the bullish case. EUR/USD has climbed nearly 5% this week, a move fueled by a combination of Eurozone optimism and fading US dollar strength. The pair has decisively breached the 200-day moving average, signaling strong upside momentum. The next key resistance stands at 1.0900, with a potential extension toward 1.0950 – 1.10 if bullish sentiment continues.

US Dollar Faces Pressure as Economic Data Signals Weakness

The US dollar has struggled to maintain strength despite recent hawkish rhetoric from the Federal Reserve, as disappointing US labor market data has started to weigh on sentiment. The latest ADP private payrolls report showed only 77,000 jobs added versus 140,000 expected, significantly below forecasts. This has sparked concerns that Friday’s Nonfarm Payrolls (NFP) report could also disappoint, which would further weaken the dollar and push EUR/USD higher.

Adding to this pressure, ISM Services PMI, which had been one of the few bright spots for the US economy, came in mixed. While the headline number surprised to the upside at 53.5, the employment component softened, adding to evidence that the labor market is cooling. With the Fed emphasizing data dependence, a string of weak reports could increase the probability of rate cuts sooner than expected, eroding the dollar’s appeal.

Another major factor keeping the USD on the back foot is US trade policy uncertainty. President Donald Trump has paused auto tariffs on Canada and Mexico, but trade war tensions with China and the European Union remain high. The US has proposed a fresh round of 25% tariffs on key European imports, and while markets are not fully pricing in their long-term impact, continued trade uncertainty could pressure the dollar further.

Eurozone Stimulus and Fiscal Expansion Boost Growth Outlook

The Euro’s strength is also underpinned by significant fiscal stimulus. Germany’s new coalition government has lifted strict borrowing rules, paving the way for €500 billion in spending over the next decade. This massive injection of funds is expected to accelerate growth, providing a bullish case for the euro relative to the dollar, where political uncertainty remains a drag on sentiment.

While the ECB has begun cutting rates, the fact that inflation risks remain elevated due to this new spending spree could limit further rate cuts and drive bond yields higher, supporting a stronger euro. This shift in market dynamics has led traders to reprice ECB rate expectations, with some now betting that the pace of cuts could slow down after this initial move.

Key Technical Levels – Can EUR/USD Hold Above 1.08 and Push Higher?

EUR/USD’s technical outlook remains bullish, with the pair decisively breaking key resistance levels. The 200-day Simple Moving Average (SMA) around 1.0830 has now turned into support, providing a base for further gains.

• Immediate resistance sits at 1.0900, a level where profit-taking could emerge.
• A sustained break above 1.0900 opens the door for 1.0950 – 1.10, marking the next bullish targets.
• On the downside, support is seen near 1.0830 (200-day SMA), followed by 1.0750. A break below this level could invalidate the bullish outlook.

Momentum indicators such as the Relative Strength Index (RSI) remain elevated but have yet to signal overbought conditions. Meanwhile, the Moving Average Convergence Divergence (MACD) continues to print rising green bars, confirming that bulls remain in control.

Is EUR/USD Heading Toward 1.10, or Will the Dollar Fight Back?

The market remains focused on two key events:

1. The ECB’s messaging on future rate cuts – If Lagarde signals that cuts will be more gradual than expected, the euro could continue rising.
2. Friday’s US Nonfarm Payrolls (NFP) report – A weak jobs report could trigger further USD selling and push EUR/USD closer to 1.10.

In contrast, if the US jobs data surprises to the upside, markets could start pricing out aggressive Fed rate cuts, leading to a rebound in the dollar. However, for now, EUR/USD remains well-positioned for further gains, with bulls eyeing the 1.10 handle in the coming sessions.

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