EUR/USD Explodes Past 1.0900—Is 1.1000 Next?

EUR/USD Price Analysis: Aggressive Momentum Drives Pair Towards 1.1000 Despite Overbought Risks

EUR/USD Bulls Accelerate Amid Turbulent Market Conditions

The EUR/USD currency pair surged impressively above the crucial 1.0900 mark on Tuesday, rising more than 0.70% to trade around 1.0930, levels last recorded in November 2024. The pair's rapid ascent signals strong bullish momentum driven largely by the sharp divergence between European and American economic outlooks, particularly in light of recent developments on both fiscal and monetary policy fronts.

Technical indicators for EUR/USD clearly suggest bullish strength, although caution is warranted due to increasingly overbought signals. The Relative Strength Index (RSI) has risen significantly, currently hovering around 72.3, firmly within overbought territory. This suggests that despite the recent bullish strength, EUR/USD is vulnerable to potential corrections or consolidations as traders may soon seek profit-taking opportunities. Additionally, the Moving Average Convergence Divergence (MACD) continues generating expanding bullish signals, confirming the dominance of buyers at the moment. Immediate technical barriers appear near 1.0970, and a decisive breakout above this resistance could pave the way toward testing the psychological threshold of 1.1000.

However, should a corrective wave begin, traders should closely monitor the support levels at 1.0850, followed by the more significant 1.0800 region where the 200-day Simple Moving Average (SMA) currently sits. Given recent volatility, these support areas will be critical for determining whether EUR/USD can sustain its bullish trajectory or whether a deeper correction becomes necessary.

Fiscal Stimulus and ECB Policy Shift Fuelling EUR/USD Rally

The extraordinary EUR/USD momentum seen in recent sessions largely stems from seismic shifts in European fiscal policy, primarily the German government's landmark announcement of a €900 billion fiscal stimulus package. This spending boost significantly alters Europe's economic landscape, driving German bond yields sharply higher by an unprecedented 40 basis points in a single session—the largest intraday yield increase in decades. Ten-year Bund yields have soared towards 3%, underscoring expectations for higher inflationary pressures and accelerated economic growth within the Eurozone.

Such an expansive fiscal stance materially influences European Central Bank (ECB) policy decisions. Previously expected to ease monetary policy more aggressively, the ECB now faces a dramatically different scenario. Markets now foresee a much narrower scope for further rate cuts due to mounting inflation risks sparked by expansive fiscal spending. As of the latest ECB meeting, interest rates were reduced modestly by 25 basis points to a still-substantial 2.5%, yet President Christine Lagarde's rhetoric suggested future rate cuts might become more cautious or even paused entirely given the fiscal context. Consequently, this significant repricing in European interest rate expectations has provided substantial bullish fuel to EUR/USD, greatly reducing the rate differential disadvantage previously held against the USD.

US Economic Sentiment Weakens: Negative Impacts on USD Propel EUR/USD Higher

Contrasting Europe's increasingly buoyant fiscal outlook, the U.S. economic landscape has recently turned more uncertain. Rising skepticism over American growth sustainability, coupled with President Trump's aggressive tariff impositions on major trading partners—including Canada, Mexico, and China—has spurred a marked decline in confidence around the USD. The Trump administration imposed punitive tariffs of 25% and 20% on steel, aluminum, and other imported goods, intensifying economic tensions. This aggressive protectionist stance exacerbates inflation concerns while simultaneously dampening economic growth prospects, a combination historically negative for currency strength.

The stark divergence in bond markets highlights the weakening USD narrative vividly. While German yields skyrocketed, U.S. Treasury yields remained relatively stagnant, indicating market participants are increasingly discounting America's economic prospects relative to Europe's. Reflecting this sentiment, the U.S. Dollar Index (DXY) has slumped considerably, now languishing near multi-month lows around 103.68, far below the critical resistance level at 104.03. Analysts now anticipate at least 75 basis points of Federal Reserve rate cuts this year, starting as early as June, driven by softening U.S. economic indicators. February's non-farm payrolls undershot expectations significantly, coming in at just 151,000 new jobs against a 160,000 forecast, with previous months' figures revised downward as well. This softening labor market data has reinforced expectations of a dovish Fed policy pivot, further pressuring USD and fueling EUR/USD upside momentum.

US Inflation Data Looms Large for EUR/USD Outlook

Upcoming U.S. inflation data is expected to play a crucial role in determining the next significant move for EUR/USD. Analysts forecast headline U.S. Consumer Price Index (CPI) to moderate slightly to around 2.9% for February, with core inflation anticipated at approximately 3.2%. Despite these seemingly benign expectations, markets remain cautious, aware that recent tariff implementations by the Trump administration may not yet fully manifest in inflation figures. Should inflation data surprise to the upside, the USD might experience temporary reprieve due to increasing market expectations for prolonged restrictive monetary conditions.

Conversely, a downside miss in inflation readings would further exacerbate USD bearish sentiment, driving EUR/USD firmly toward or even beyond the 1.1000 resistance level. The risk remains high that tariff-related inflation could accelerate beyond market forecasts in subsequent months, further complicating the Fed’s policy calculus. Under these conditions, EUR/USD could sustain its bullish trend for a longer period than initially anticipated, provided European economic fundamentals remain strong.

SEK and TRY Implications Highlight Broader EUR/USD Sentiment

Broader foreign exchange trends reinforce the positive EUR/USD narrative. Sweden’s inflation unexpectedly accelerated sharply, with core CPI rising from 2.7% to 3.0% in February. This inflationary surprise significantly reduces expectations for further easing by Sweden’s central bank, temporarily bolstering the Swedish krona. However, SEK remains vulnerable longer-term due to geopolitical uncertainties and broader European tariff risks, implying EUR/USD should remain relatively stronger by comparison.

Simultaneously, the Turkish lira (TRY) provides additional context regarding broader USD sentiment. Despite aggressive rate cuts by Turkey’s central bank, reducing rates by another 250 basis points to 42.50%, the TRY maintains relative strength against the USD, largely driven by sustained real appreciation. Yet, Turkey's increasingly accommodative stance suggests USD weakness extends beyond traditional Eurozone pairs. Market consensus anticipates continued TRY appreciation, with USD/TRY projected to decline toward 38.10 by mid-year. Such widespread USD bearishness confirms that the current EUR/USD strength is part of a more extensive global trend of dollar skepticism.

Potential Risks: Tariff Escalations and Technical Corrections in EUR/USD

Despite EUR/USD's evident bullish strength, significant risks remain on the horizon. Escalating tariffs on European imports represent perhaps the most acute short-term threat. The Trump administration continues signaling readiness to implement further punitive trade measures against Europe. Should these threats materialize rapidly, EUR/USD could experience abrupt corrections driven by fresh economic uncertainty in the Eurozone.

Additionally, the pronounced overbought technical signals must not be disregarded. With RSI firmly above 70, near-term consolidations or profit-taking episodes could swiftly materialize, temporarily restraining EUR/USD's upward momentum. Investors should remain vigilant, particularly if EUR/USD challenges the formidable psychological resistance at 1.1000. Short-term traders may prudently seek opportunities to capitalize on potential pullbacks toward robust support levels around 1.0800–1.0850.

Nevertheless, until these fundamental risk scenarios gain clearer traction, EUR/USD remains firmly positioned on a bullish trajectory. Traders should cautiously acknowledge both technical and fundamental overextensions while appreciating the profound shifts occurring in European fiscal and monetary policy environments. Overall, given the substantial macroeconomic divergence, strong European fiscal stimulus measures, persistently dovish Fed outlook, and imminent inflation data risks in the U.S., EUR/USD currently demonstrates robust bullish momentum with legitimate potential to extend toward and possibly breach the critical 1.1000 psychological threshold in the near term.

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