EUR/USD is showing tentative signs of recovery after slipping back towards the 1.1400 area, marking yearly lows just a few days ago. That said, as long as the pair remains below the key 200 day Simple Moving Average (SMA) near 1.1670, downside risks are likely to persist in the near term.
EUR/USD is trading on the back foot for the second day in a row on Wednesday, building on recent losses and approaching the 1.1550 region.
The pair’s move to the vicinity of two-day lows comes on the back of the continuation of the upside bias in the US Dollar (USD), which remains almost exclusively propped up by intense tensions in the Middle East as well as unabated uncertainty over the potential duration of the conflict.
Fed: steady policy, higher bar for cuts
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 is still steady, and inflation remains somewhat elevated. Simultaneously, the air is thick with uncertainty, especially with the Middle East on everyone’s minds.
The most telling clue emerged from the forecasts. Inflation expectations for 2026 were bumped up, and the long-term rate also ticked higher, suggesting that price increases might be here to stay. While the projected rate path still indicates only a gradual easing, internal disagreements are apparent. Some officials anticipate no cuts in 2026, and one even sees rates climbing into 2027.
The takeaway is straightforward: the Fed isn’t hurrying, and the threshold for rate cuts is set high.
Chair Jerome Powell reinforced that stance in his press conference: the economy continues to expand, supported by solid consumption and productivity, while the labour market is cooling only gradually. Inflation progress appears to have stalled somewhat, with energy and tariffs adding noise to the outlook.
In addition, policy is seen as close to neutral or slightly restrictive. Furthermore, 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: alert to risks, not yet comfortable
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.
Additionally, projections were revised higher for inflation, particularly into 2026, while growth expectations remain subdued. The ECB also 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 her remarks earlier on Wednesday, President Christine Lagarde struck a vigilant tone, stressing that the case for policy action strengthens when inflation deviations become larger and more persistent. She acknowledged that even a temporary overshoot could warrant a measured response if second-round effects begin to emerge.
Markets currently price in nearly 70 basis points of tightening by year end, with more than a 60% probability of a 25 basis point hike at the April 30 meeting.
Positioning: Euro longs continue to unwind
On the positioning front, the picture is clear; the market has stepped back from the Euro.
The Commodity Futures Trading Commission’s (CFTC) latest data, which encompasses the week ending March 17th, shows a notable decline in speculative net long positions. These positions are currently sitting at approximately 21,100 contracts.
At the same time, open interest dropped notably 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 the pair softening over the same period as positioning was trimmed.
What it means: momentum fades; caution builds
The bullish Euro narrative has clearly lost momentum. However, this is not a market that is breaking down, at least not yet. Instead, it is becoming more cautious, with investors 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: less support, more balance
The single currency has lost a meaningful portion of its positioning support, leaving the market more balanced and less crowded. While this move lessens the chances of a sudden, dramatic long squeeze in the near future, it simultaneously weakens a crucial support element. To see the EUR gain ground against the USD, a fresh development is likely required. This could come from a change in central bank policy or a broader improvement in investor sentiment.
What’s next?
Near term: the pair remains largely influenced by the buck’s fluctuations, while geopolitical tensions and trade disagreements continue to shape the landscape. Meanwhile, Thursday’s US jobs report will grab all the attention on Thursday.
Risks: should the situation in the Middle East deteriorate, a rush to safety might ensue, which would likely strengthen the US Dollar. Technically speaking, if the price stays below the 200-day SMA, the chances of a deeper retracement increase.
Technical corner
In the daily chart, EUR/USD trades at 1.1561. The pair holds below the 55- and 100-day Simple Moving Averages (SMAs) clustered near 1.17 and also beneath the gently rising 200-day SMA around 1.17, keeping the near-term bias bearish despite the longer-term trend remaining broadly supported. The Relative Strength Index (RSI) at 44 stays below the 50 line, aligning with persistent downside pressure, while the Average Directional Index (ADX) above 34 points to a still-defined trend phase rather than a mere sideways consolidation.
Immediate resistance emerges at 1.1578, with a break above that level opening the way toward 1.1766 as the next barrier. Stronger resistance is seen higher at 1.2082, followed by 1.2266 and 1.2350. On the downside, initial support stands at 1.1491, ahead of 1.1469, where a clustered area could attract dip buyers; a clear loss of this band would expose the lower support at 1.1392.
(The technical analysis of this story was written with the help of an AI tool.)
To sum up: Dollar still in control
The Dollar remains firmly in charge.
At this stage, the pair is reacting more to developments in Washington than in Frankfurt. Until there is clearer direction from the Fed, or a more convincing recovery in the Euroland, sustainable gains remain limited.
German economy FAQs
The German economy has a significant impact on the Euro due to its status as the largest economy within the Eurozone. Germany’s economic performance, its GDP, employment, and inflation, can greatly influence the overall stability and confidence in the Euro. As Germany’s economy strengthens, it can bolster the Euro’s value, while the opposite is true if it weakens. Overall, the German economy plays a crucial role in shaping the Euro’s strength and perception in global markets.
Germany is the largest economy in the Eurozone and therefore an influential actor in the region. During the Eurozone sovereign debt crisis in 2009-12, Germany was pivotal in setting up various stability funds to bail out debtor countries. It took a leadership role in the implementation of the ‘Fiscal Compact’ following the crisis – a set of more stringent rules to manage member states’ finances and punish ‘debt sinners’. Germany spearheaded a culture of ‘Financial Stability’ and the German economic model has been widely used as a blueprint for economic growth by fellow Eurozone members.
Bunds are bonds issued by the German government. Like all bonds they pay holders a regular interest payment, or coupon, followed by the full value of the loan, or principal, at maturity. Because Germany has the largest economy in the Eurozone, Bunds are used as a benchmark for other European government bonds. Long-term Bunds are viewed as a solid, risk-free investment as they are backed by the full faith and credit of the German nation. For this reason they are treated as a safe-haven by investors – gaining in value in times of crisis, whilst falling during periods of prosperity.
German Bund Yields measure the annual return an investor can expect from holding German government bonds, or Bunds. Like other bonds, Bunds pay holders interest at regular intervals, called the ‘coupon’, followed by the full value of the bond at maturity. Whilst the coupon is fixed, the Yield varies as it takes into account changes in the bond’s price, and it is therefore considered a more accurate reflection of return. A decline in the bund’s price raises the coupon as a percentage of the loan, resulting in a higher Yield and vice versa for a rise. This explains why Bund Yields move inversely to prices.
The Bundesbank is the central bank of Germany. It plays a key role in implementing monetary policy within Germany, and central banks in the region more broadly. Its goal is price stability, or keeping inflation low and predictable. It is responsible for ensuring the smooth operation of payment systems in Germany and participates in the oversight of financial institutions. The Bundesbank has a reputation for being conservative, prioritizing the fight against inflation over economic growth. It has been influential in the setup and policy of the European Central Bank (ECB).
