EUR/USD Surges to 1.0845 as Traders Bet on Fed Rate Cuts

EUR/USD Technical Deep Dive: Crucial Levels Shaping Price at 1.0830

The EUR/USD pair trades near the crucial 1.0830 zone, extending mild gains early this week following a dramatic surge of 4.6% to a peak of 1.0885 last week—just shy of the pivotal 1.0936 mark, which represents a five-month peak. This rapid upward drive was notably powered by weakening U.S. economic indicators, especially the disappointing February Nonfarm Payrolls (NFP) data. Specifically, NFP reported 151,000 new jobs added in February, missing analysts’ consensus forecast of 160,000, following January’s downward revision from 143,000 to 125,000. Additionally, U.S. unemployment increased slightly to 4.1%, marking the highest level in almost two years, thus intensifying expectations of potential Federal Reserve rate cuts later in 2025.

From a technical standpoint, EUR/USD has now encountered strong resistance around the 1.0885 zone. This level has historically proven tough to breach, and despite the recent bullish momentum, the pair has retraced somewhat, currently trading just above 1.0830. However, it’s important to underscore that the short-term bullish structure is largely intact. The pair maintains its posture above the pivotal 200-day Simple Moving Average (SMA) positioned at 1.0780, which acts as critical downside protection in the near term.

Examining momentum through the lens of technical indicators, the Relative Strength Index (RSI) stands around 70, slightly retreating from previously overbought conditions. Typically, an RSI hovering in the vicinity of 70 indicates potential exhaustion among bullish traders. It suggests the pair might face consolidation or slight downward corrections unless substantial new fundamental catalysts emerge to justify further upside moves. Alongside the RSI, the Moving Average Convergence Divergence (MACD) indicator continues to signal bullish strength via rising green bars but is showing signs of moderating intensity. Hence, it is realistic to expect short-term caution among traders at these technical junctures.

Immediate downside support for EUR/USD appears robust near 1.0780, backed by the aforementioned 200-day SMA. If the pair decisively closes below this level on a daily chart, bearish traders could aggressively target a lower psychological and technical level around 1.0750. Beyond that, a further dip toward the deeper support range at 1.0700 could swiftly follow, erasing a significant portion of recent gains.

Meanwhile, resistance remains tightly held at 1.0885. A sustained move above this threshold would mark a substantial technical breakout, opening a clear pathway toward the notable five-month high at approximately 1.0936. Overcoming this critical barrier would reinforce the bullish narrative and possibly set the stage for an extended rally towards the upper target at around 1.1000, a level that hasn't been tested for a prolonged period and carries considerable psychological importance.

Dollar Weakness Amplifies EUR/USD Potential, CPI in Focus

One of the central narratives supporting the EUR/USD rise toward the 1.0830 level has been the pronounced weakness in the U.S. dollar, primarily fueled by declining Treasury yields amid increasing expectations of Federal Reserve rate cuts later this year. This expectation was notably strengthened after weaker U.S. employment data, including the aforementioned disappointing Nonfarm Payrolls numbers. Beyond job figures, rising unemployment to 4.1%—its highest reading in nearly two years—further compounds the bearish dollar sentiment, raising alarms regarding the resilience of the U.S. labor market and economic stability.

Traders and analysts are now highly attentive to upcoming U.S. economic data points, notably the Consumer Price Index (CPI) scheduled for release on March 12. Market consensus expects the CPI to ease moderately, projecting monthly core inflation to soften to 0.3% from the previous 0.4%. Headline CPI, similarly, is forecast to decline on a monthly basis from 0.5% down to 0.3%, while the annual inflation figure is anticipated to decrease marginally from 3.0% to 2.9%. If these inflation figures undershoot expectations, speculation about imminent Federal Reserve rate cuts will likely intensify, exerting further downward pressure on the U.S. dollar and correspondingly bolstering EUR/USD.

Beyond CPI, investors will keenly observe the Producer Price Index (PPI) and weekly jobless claims on March 13. Core PPI is expected to remain stable at a 0.3% monthly increase, while initial jobless claims might edge higher to around 226,000 from the previous 221,000. Any unexpected softness here could amplify dollar weakness and subsequently reinforce bullish potential in EUR/USD.

Additional critical data includes the University of Michigan’s Consumer Sentiment Index, due March 14, forecasted to dip slightly to 63.8 from the prior 64.7. This reading provides key insights into consumer confidence and future inflation expectations, serving as a significant barometer for policymakers at the Fed. A reading below forecast could again drive bearish sentiment toward the dollar, giving the EUR/USD further upward momentum toward retesting key resistance levels.

Eurozone Indicators and Sentiment Improve, Supporting EUR/USD

Supporting the recent bullish EUR/USD narrative is improving economic data from the Eurozone itself. For instance, the Sentix Investor Confidence Index improved notably in March to a reading of -2.9 from the deeply pessimistic -12.7 previously reported. Although still negative, this improvement represents a substantial recovery in investor confidence, hinting at potentially stabilizing economic conditions within the Eurozone.

Further supporting the euro side of the equation, German Industrial Production expanded 2.0% month-over-month in January, contrasting sharply with its annual contraction of -1.6%. Despite the negative year-over-year figure, the short-term month-over-month recovery suggests underlying resilience in Europe's largest economy, providing optimism about potential economic stabilization or even growth prospects moving forward.

Contrasting this cautiously positive Eurozone economic outlook is continued anxiety around China’s inflation landscape. February data revealed Chinese CPI contracted by -0.2% month-over-month, marking the lowest inflation point in over a year, with an annualized CPI falling sharply to -0.7%. Moreover, China's Producer Price Index declined by 2.2% year-over-year, slightly better than the previous -2.3% but still below expectations of -2.1%. These deflationary pressures in China exacerbate global economic concerns, indirectly supporting safe-haven currencies and further contributing to volatility in the EUR/USD dynamic.

In summary, EUR/USD currently trades at 1.0830 with bullish momentum largely intact, although the immediate technical resistance at 1.0885 poses significant challenges. Traders must carefully watch forthcoming U.S. inflation data and European economic indicators, which could decisively shift market sentiment and determine the pair’s trajectory in coming sessions.

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