EUR/USD outlook: Forex Friday – February 21, 2025

The EUR/USD dipped back below the 1.05 handle on the back of some not-so-great PMI numbers released earlier this morning, with investors also wary of the German election taking place at the weekend. The immediate focus is now on the upcoming US PMIs and revised UoM consumer sentiment and inflation expectations data. But there won’t be any significantly important data until the release of US core PCE price index next Friday, which means all the focus for the dollar will be on Trump, tariffs and Ukraine’s peace talks. Optimism surrounding peace negotiations in Ukraine has provided modest support to the EUR/USD outlook. However, sentiment has taken a slight knock in recent days amid tariff concerns and a brewing dispute between President Donald Trump and Ukrainian President Volodymyr Zelenskiy. That said, hopes remain that a deal could eventually be reached.

Can German election impact the EUR/USD outlook?

Certainly, if there is a surprise. Sunday's German election is likely to result in a conservative-led coalition government. Reviving the stagnant economy is what investors want to see to help the EUR/USD outlook, but there is a risk to block reform should populist parties do well. Germany could face months of uncertainty, if more than one partner is needed for the poll-leading conservative CDU/CSU party, led by Friedrich Merz. The key questions are how quickly a government could be formed and whether there will be a two-thirds majority of parties entering parliament that support fiscal reform.

Key US data is core PCE price index next week

While we will have plenty of second-tier data here and there, the key one for the dollar and indeed other financial markets will be the PCE price index, due on Friday, February 28. This is the Fed’s preferred inflation gauge, which makes it super important. The latest CPI and PPI numbers that were released last week both proved to be hotter than expected, although the dollar failed to react positively to the hotter inflation data as concerns over tariffs eased. It was also the components of the PPI that feed into the Core PCE index, including healthcare and insurance costs, along with a sharp drop in airline fares, that eased inflation concerns. Those figures suggest that Core PCE is likely to ease to 2.6%, down from the previous 2.8% estimate. Meanwhile, we will also get the preliminary US Q4 GDP released at the same time (second estimate) on Friday, making it a key day for data.

Technical EUR/USD outlook: Key levels to watch

Source: TradingView.com

The EUR/USD remains confined to a range, though a potential breakout could be on the cards. If recent price action is anything to go by, dip-buying has been the key theme in this pair and other dollar majors like the AUD/USD. The EUR/USD formed a bullish candle on Thursday as it held key support in the 1.0400–1.0430 region. Having established a floor last week, the euro has since made an attempt to push through key resistance at 1.0480–1.0500, though selling pressure has emerged at those levels. Even so, the formation of higher lows suggests underlying buying interest, despite the broader technical EUR/USD outlook remaining somewhat uncertain. 

For now, I’d prefer to see further bullish price action before anticipating a more sustained move higher. A decisive break above the 1.0480–1.0500 range could mark a shift in sentiment, potentially paving the way for follow-through buying towards the next resistance at 1.0600 and, if momentum builds, even 1.0700. 

All in all, I see the likelihood of a rally above the 1.05 handle as greater than a breakdown below 1.02 support.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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