EUR/USD Outlook: Can the pair stage clean breakout above 1.05?

The EUR/USD dipped back below the 1.05 threshold this morning, though the losses were limited, keeping hopes alive for a more decisive break higher in the coming days. A softer US economic backdrop and a drop in bond yields point to a weaker outlook for the dollar, potentially countering any lingering support from Trump’s inflationary policies. The EUR/USD outlook could take a big boost should we see some progress towards the Ukraine peace process.

US Dollar Rebounds, But Bearish Signals Persist

Although the Dollar Index firmed up in early trade, whether these gains hold remains to be seen. US bonds have rallied in recent days amid growing economic concerns, reinforced by weaker data releases, causing rates traders to now fully pricing in two quarter-point rate cuts by the Federal Reserve this year. A disappointing US consumer confidence report from the Conference Board (CB) yesterday added to the gloom, following last week’s lacklustre University of Michigan (UoM) survey.

The CB’s Consumer Confidence Index suffered its sharpest decline since August 2021, while revised data from the UoM’s survey showed a print of 64.7 from an initial reading of 67.8. Additional data paints a similarly downbeat picture, with the S&P Global flash services PMI unexpectedly slipping into contraction and existing home sales tumbling 4.9%. At the same time, long-term inflation expectations have edged higher amid discussions on potential tariffs, fuelling stagflation concerns. The UoM’s survey revealed a striking 30-year high in long-term inflation expectations, at 3.5%—reflecting consumer sentiment on inflation over the next five years.

Key Events to Watch This Week

Today’s macroeconomic calendar is relatively light, with US new home sales on the agenda. However, the focal point of the week will be Nvidia’s earnings. Thursday brings the release of US GDP figures and initial jobless claims, alongside speeches from multiple Federal Reserve officials. By Friday, the market’s attention will shift to the Fed’s preferred inflation gauge—the core PCE price index—along with a handful of secondary economic reports.

EUR/USD outlook: What about the single currency?

EUR/USD’s upside remains capped by ongoing US-Europe trade tensions, particularly regarding Trump’s tariff stance, as well as uncertainty surrounding Ukraine peace negotiations. Eurozone economic data has been far from inspiring, with last week’s PMIs and this week’s German ifo Business Climate and GfK Consumer Climate reports painting a subdued picture. However, with German election uncertainty now behind us and peace talks over Ukraine still in progress, the euro’s downside may be contained—unless incoming data bolsters the case for a more significant pace of ECB policy easing.

Technical EUR/USD outlook: Key Levels to Watch

Source: TradingView.com

The EUR/USD chart remains range-bound, though a breakout looks increasingly likely in my opinion. Recent price action suggests dip-buying remains a dominant theme, not just for this pair but also for other dollar majors like AUD/USD. Last week, key support held firm in the 1.0400–1.0430 region, allowing the pair to reclaim the 21-day exponential moving average and stay above a short-term bullish trendline.

Resistance sits near the 1.0500 mark, though selling pressure around this level appears to be easing. The formation of higher lows suggests underlying buying interest, even as the broader technical EUR/USD outlook remains somewhat mixed. For the bulls, a convincing move above 1.0500 would be the next milestone, potentially paving the way for further gains towards 1.0600 and, if momentum persists, 1.0700 thereafter.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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