The EUR/USD exchange rate continued its strong uptrend as global risks rose. It jumped to a high of 1.1087, its highest swing since April 4. It has soared by over 8.3% from the lowest point this year as focus shifts to the upcoming US consumer inflation data and Federal Reserve minutes. Technicals point to further euro surge after the pair formed a cup and handle pattern.
ECB interest rate cuts
The EUR/USD pair continued soaring even as analysts and some ECB officials hinted of more interest rate cuts.
In a statement Francois Villeroy de Galhau, a member of ECB’s governing council, said that the bank should cut interest rates faster. He noted that the trade war will not have a non-negligible direct impact on the European economy.
In a statement, he warned that the bloc’s GDP growth will have a 0.25% hit this year. He expects the European economy to have a disinflationary trend, helped in part by the soaring euro that makes imports less expensive. He said:
“There’s still room to cut rates, which we must decide on using agile pragmatism: Pragmatic because it’s based on economic data and agile because we must go as fast as is justified.”
Most analysts believe that the ECB will need to cut rates in May and June, a move that will help lower the cost of doing business and boost economic growth.
A key concern for Europe is that Trump has started charging a 20% tariff on most goods and another 25% on cars, steel, and aluminum. These tariffs mean that demand for some discretionary goods from Europe like vehicles, could start to dry as Americans opt for locally-made vehicles.
Worse, the soaring EUR/USD exchange rate means European goods are now becoming more expensive to American consumers.
The next key catalyst for the EUR/USD pair will be the upcoming minutes by the Federal Reserve. These minutes will provide more information about the last meeting.
Also, the pair will react to Thursday’s inflation report, which may push the Fed to cut interest rates. Economists expect the data to show that the headline consumer price index (CPI) and core CPI dropped to 2.5% and 3.0%. These numbers, however, will likely not have an impact because they will not factor in the recent tariffs.
EUR/USD technical analysis
The daily chart shows that the EUR to USD exchange rate has jumped from the year-to-date low of 1.0175 to the current 1.1025. It formed a golden cross as the 50-day and 200-day Weighted Moving Averages (WMA) crossed each other.
Most importantly, the pair has formed a cup-and-handle pattern, a popular continuation sign. The upper side of this pattern is at 1.0935, which the pair has now moved above. Its depth is about 7%.
The Relative Strength Index (RSI) and MACD indicators have all pointed upward. Therefore, measuring 7% from the upper side of the cup shows a target at 1.1700. This view will be confirmed if it moves above the key resistance point at 1.1215, the highest point in 2024.
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