EUR/USD fades its recent recovery attempt and refocuses once again on the downside, while the US Dollar’s (USD) firm performance continues to weigh on the risk-linked universe and keeps the sentiment sour, all following geopolitical concerns.
EUR/USD recedes further on Thursday, hitting three-day lows in the 1.1530-1.1520 range and adding to the weekly correction.
The pair’s retracement follows the persistent move higher in the Greenback, which remains well bid amid incessant inflows into the safe-haven universe in the current context of a deteriorated geopolitical environment.
Fed: on hold, no rush to ease
The Fed did exactly what markets expected last week, keeping rates unchanged at 3.50% to 3.75%, although the underlying tone leaned slightly more hawkish than the headline suggests.
The backdrop remains largely unchanged: growth continues to hold up, the labour market remains steady, and inflation is still described as somewhat elevated, all amid elevated uncertainty on the geopolitical front.
The release of the updated economic projections was key: inflation expectations for 2026 were revised higher, while the longer run rate also edged up, pointing to more persistent price pressures. Although the rate path still implies only gradual easing, internal divisions are evident, with some officials seeing no cuts in 2026 and one even projecting higher rates 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, noting that the economy continues to expand on the back of 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 data-dependent, wait-and-see Fed.
ECB: risks rising, options open
The ECB also left all three key rates unchanged, with the deposit rate at 2.00%, but the tone remained cautious rather than reassuring.
The Middle East conflict has shifted the balance of risks, adding to inflation pressures while weighing on growth. That tension framed the entire meeting.
Projections were revised higher for inflation, particularly into 2026, while growth expectations remain subdued. The ECB leaned more heavily on scenario analysis, highlighting downside risks to growth and upside risks to inflation, especially in the event of further energy disruptions.
In this context, Joachim Nagel struck a cautious but slightly hawkish tone, keeping the door open to further tightening while emphasising data dependency. He noted that by April, the ECB should have enough information to decide whether action is needed or if a wait and see approach is more appropriate. At the same time, he warned that inflation risks are building with each passing day.
Nagel also stressed that a rate hike in April is clearly on the table, although not a done deal, framing it as one option among several. Markets currently price in around 82 basis points of tightening by year end, with more than a 72% probability of a 25 basis point hike at the April 30 meeting.
Positioning: Euro longs unwind further
On the positioning front, the picture is clear; the market has stepped back from the Euro (EUR).
According to the latest Commodity Futures Trading Commission (CFTC) data for the week ending March 17, speculative net long positions declined markedly to around 21.1K contracts.
At the same time, open interest fell sharply to roughly 755.8K contracts, pointing to a broad reduction in participation. This dynamic looks more like long liquidation than the build-up of fresh shorts.
Price action reinforces that view, with EUR/USD softening over the same period as positioning was trimmed.
What it means: momentum is fading; caution creeping in
The bullish Euro story is clearly losing some steam. That said, this is not a market that is breaking down, at least not for now. It feels more like investors are taking a step back, trimming exposure as the outlook becomes more uncertain.
Indeed, that development looks less like a shift in trend and more like a pause, all following some profit-taking and a bit of reassessment.
What’s next for EUR/USD
Near term: the pair remains largely driven by USD dynamics, with geopolitics and trade tensions still shaping the narrative. Absent significant data releases on Friday, investors are expected to closely follow comments from ECB and Fed officials.
Risks: any escalation in the Middle East could quickly trigger renewed safe haven demand, thus lending extra support to the Greenback. From a technical view, a sustained breach below the 200 day Simple Moving Average would increase the risk of a deeper retracement.
Technical landscape
In the daily chart, EUR/USD trades at 1.1536. The near-term bias is mildly bearish as spot holds below the downward-sloping 55-day and 100-day Simple Moving Averages (SMAs) clustered around 1.17, while also trading beneath the flat 200-day SMA near 1.17, which reinforces a capped broader trend. The Relative Strength Index (RSI) at 42 stays below the 50 midline, aligning with persistent selling pressure, and the Average Directional Index (ADX) above 34 indicates a mature but still active directional move rather than a range-bound phase.
Immediate resistance emerges at 1.1578, ahead of 1.1766, where the short- and medium-term SMAs converge to strengthen this barrier. A daily close above 1.1578 would be needed to ease downside pressure and open the way toward 1.1766. On the downside, initial support stands at 1.1491, followed by 1.1469, with a break there exposing the lower support at 1.1392. Continued trading below the nearby resistance band keeps bears in control while those supports hold the key to whether the decline extends.
(The technical analysis of this story was written with the help of an AI tool.)
All in all
The Dollar remains firmly in charge.
At this stage, EUR/USD continues to react more to developments in Washington than in Frankfurt. Until there is clearer direction from the Fed, or a more convincing recovery in the euro area, sustainable upside appears limited.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
