The EUR/USD is exhibiting modest indications of recovery after slipping back toward the 1.1400 zone a few days ago, or YTD lows. Meanwhile, as long as it continues below the important 200-day Simple Moving Average (SMA) around 1.1670, spot is likely to face further downside pressure in the short-term horizon.
EUR/USD comes under fresh selling interest on Tuesday, surrendering part of the robust advance seen at the beginning of the week and returning to the area below the key 1.1600 support.
The renewed downward trend in spot comes amid a marked uptick in the US Dollar (USD), as market participants remain cautious in the current context of heightened uncertainty and unabated geopolitical tensions in the Middle East.
Fed: holding steady, patience still the play
The Fed did exactly what markets expected, keeping rates unchanged at 3.50% to 3.75%, but the underlying tone came across slightly more hawkish than the headline suggests.
The backdrop has not changed much. Growth is still holding up, the labour market remains steady, and inflation is still described as somewhat elevated. At the same time, uncertainty remains high, particularly with the Middle East in focus.
The real signal came from the projections. The inflation forecast for 2026 was adjusted upward, and the long-term rate also climbed, suggesting that price pressures could linger. While the trajectory of rate changes still suggests only modest easing, the internal divisions are notable. Some officials anticipate no rate cuts in 2026, and one even predicts higher rates extending into 2027.
The message is clear. The Fed is in no hurry, and the bar for cuts remains high.
Chair Jerome Powell reinforced that stance. The economy continues to expand, supported by solid consumption and productivity, while the labour market is cooling only gradually. Progress on inflation appears to have stalled somewhat, with energy and tariffs adding noise to the outlook.
Policy is seen as close to neutral or slightly restrictive. There is no appetite to tighten further, but equally no urgency to ease. For now, it remains a wait-and-see, data-dependent Fed.
ECB: cautious stance, risks building
The ECB also stood pat, leaving all three key rates unchanged, with the deposit rate at 2.00%. However, the tone was cautious rather than comfortable.
The Middle East conflict has shifted the balance of risks. It adds to inflation pressures while weighing on growth, and that tension framed the meeting.
Projections were revised higher for inflation, particularly into 2026, while growth expectations remain modest. The ECB leaned more on scenario analysis, highlighting downside risks to growth and upside risks to inflation, especially in the case of further energy disruption.
President Christine Lagarde struck a calm but deliberate tone. The ECB is well positioned but not comfortable. Energy could push inflation back above 2% in the near term, and second-round effects remain under close watch, even as underlying inflation and wage pressures show signs of easing.
Meanwhile, markets price in nearly 74 basis points of tightening by year-end, with more than a 75% probability of a 25 basis point hike at the April 30 meeting.
Positioning: Euro longs unwind
On the positioning side, the picture is quite clear: the market has taken a step back from the Euro.
The Commodity Futures Trading Commission’s (CFTC) most recent figures, covering the week that wrapped up on March 17th, reveal a significant decline in speculative net long positions, now hovering near 21.1K contracts.
At the same time, open interest declined notably to roughly 755.8K contracts, pointing to a broad reduction in participation. This looks more like long liquidation than the build-up of fresh shorts.
Price action aligns with that view. EUR/USD softened over the same period, reinforcing the idea that the trimming of longs has fed directly into spot.
What it means
The bullish Euro narrative has clearly lost momentum.
This is not a market that is breaking down, at least not yet. Instead, it is becoming more cautious. Investors are scaling back exposure as the outlook grows more uncertain.
It feels more like profit-taking and reassessment than a decisive shift in direction.
FX takeaway
The Euro has shed a significant amount of its positioning support, resulting in a more balanced and less crowded market.
This, in the short term, lessens the chances of a sudden long squeeze. However, it also removes a key source of backing. For EUR/USD to move higher again, a new impetus will probably be required, whether from central banks or a general improvement in risk appetite.
What’s next for EUR/USD
Near term: spot is still largely influenced by the US Dollar. Geopolitical issues and trade disputes are still front and centre, and Germany’s IFO Business Climate data, along with comments from President Lagarde, should keep the markets focused on Wednesday.
Risks: a flare-up in the Middle East might reignite the flight to safety that bolsters the US Dollar. Technically speaking, a prolonged dip beneath the 200-day Simple Moving Average would heighten the chances of a more significant downturn.
What techs are saying
In the daily chart, EUR/USD trades at 1.1591. The pair holds below the 55-day and 100-day Simple Moving Averages (SMAs), while the 200-day SMA at 1.1678 caps the broader topside, together reinforcing a bearish near-term bias as rallies struggle beneath this cluster of dynamic resistance. The Relative Strength Index (RSI) hovers in the mid-40s, consistent with soft downside momentum rather than capitulation, while the elevated Average Directional Index (ADX) above 30 suggests the prevailing downtrend retains directional strength.
Immediate resistance stands at 1.1766, aligned with the nearby 55-day SMA zone, and a daily close above this level would be needed to ease downside pressure, opening the way toward 1.2082. On the downside, initial support appears at 1.1578, with a break exposing the denser support band at 1.1491 and 1.1469, ahead of the lower level at 1.1392. As long as the price trades below 1.1766 and the key moving averages, risk remains skewed toward a continuation of the decline into the cited support area.
(The technical analysis of this story was written with the help of an AI tool.)
In summary: The Dollar holds sway
The Dollar continues to dictate the market’s direction.
Currently, EUR/USD is more influenced by events in Washington than by those in Frankfurt.
Until there is clearer direction from the Fed or a more convincing recovery in the euro area, upside looks limited.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
