EURUSD, Nasdaq Analysis: ECB Rate Decision and AI Uncertainty

Article Outline

• Key Events: Fed Holds, ECB Decision, Mega Cap Earnings
• Technical Analysis: EURUSD, Nasdaq (3-Day Time Frames)

ECB Main Refinancing Rate

Following the Fed’s decision to hold rates, citing the continued decline in inflationary pressures, the US dollar maintained its bullish stance above the 107-mark, while the euro remains hesitant below the 1.05-mark. The ECB is expected to cut rates by 25 basis points today, adding downward pressure on the EURUSD pair. This move aims to support economic growth, despite weak economic reports and uncertainty surrounding potential Trump tariffs. Although rate cuts are typically priced in advance, market participants will closely monitor the ECB press conference for further insights into the future policy outlook and potential market trends.

AI Sector Uncertainty, Tech Earnings, and Fed Outlook

The introduction of DeepSeek AI into the markets has not only intensified concerns about trade war risks and AI sector competition but has also deepened uncertainties surrounding the valuation of the AI industry. As global markets become increasingly dependent on AI technology, the sector’s rapid growth has been strongly linked to its widespread adoption. While the long-term outlook for AI remains optimistic, the pace of expansion may decelerate due to the emergence of new platforms and heightened market competition.

Despite mixed earnings reports from Microsoft, Meta, and Tesla, the Federal Reserve’s confidence in its inflation trajectory, coupled with Trump’s commitment to curbing inflation and fostering economic growth, has supported the tech sector’s bullish rebound, recovering from Monday’s extreme oversold levels. As market valuations typically revert to their mean levels in February, further normalization is expected after the post-New Year hype, potentially giving way to more cautious trading trends.

EURUSD Analysis: 3-Day Time Frame – Log Scale

Source: Tradingview

The Euro’s rebound remains uncertain, struggling to gain momentum above the 1.0520 mark, yet it continues to hold support at 1.0370 ahead of the ECB meeting. The 1.0520 resistance level aligns with the mid-channel resistance zone of the July 2023 – January 2025 trend, while the Relative Strength Index (RSI) has also rebounded from its neutral 50 level.

A firm close above 1.0520, coupled with a breakout above the RSI’s 50-neutral zone, could open the door for further gains toward 1.0620, 1.0700, and 1.0850. A break below 1.0370 and 1.0300 could reinforce a bearish outlook, potentially driving the pair back toward 2025 lows. A further decline below 1.0170 could accelerate losses toward parity and the 0.98 zone.

Nasdaq Analysis: 3-Day Time Frame – Log Scale

Source: Tradingvew

The Nasdaq has once again climbed back within the boundaries of its primary uptrend channel, following an extended wick toward the 20,630 level amid the recent AI sector decline. The index is currently trading around 21,500, with the next key levels for bullish continuation at 21,700 and 22,000. A firm break above the all-time high of 22,130 could extend the trend toward 22,800.

However, downside risks persist due to declining confidence in the broader valuation of the tech sector. From a long-term perspective, the growth of the tech and AI industries remains aligned with global economic expansion, yet the momentum of this hype cycle may stabilize over time. If the Nasdaq drops back below the uptrend’s lower boundary and fails to hold 21,000 and 20,800, deeper retracements may occur, with potential declines toward 20,200, 20,000, and 19,600, increasing the likelihood of a more severe bearish scenario for the index.

Written by Razan Hilal, CMT

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