- EUR/USD weakened to five-week lows and challenged the 1.1500 support.
- The US Dollar maintained its ongoing rebound ahead of the FOMC event.
- The Federal Reserve is expected to keep rates unchanged on Wednesday.
The Euro’s (EUR) slide picked up pace on Tuesday, as EUR/USD slipped to multi-week troughs in the 1.1520-1.1510 band, fuelled by the intense US Dollar strength that pushed the US Dollar Index (DXY) back above the 99.00 barrier.
Dollar finds footing on trade hopes
Optimism over the weekend’s US–EU framework deal underpinned the Greenback’s advance. In the pact, both sides agreed to a 15% tariff on most EU exports to the US (up from April’s 10% but well below the 30% initially threatened), while sparing key sectors—aircraft, semiconductors, chemicals, and selected farm goods—from duties altogether. Additionally, the tariffs on steel and aluminium remain at 50%.
In exchange, the EU has committed to purchasing $750 billion in American energy, buying “vast amounts” of US military equipment, and boosting investment in the US by over $600 billion.
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However, several EU MPs have spoken out against the trade agreement with the United States. Germany’s Chancellor, Friedrich Merz, cautioned that the agreed-upon tariffs will have a significant negative impact on the economy, while France’s Emmanuel Macron called the agreement a “dark day” for Europe.
That burst of trade optimism briefly pushed back concerns about President Trump’s surprise visit to Fed headquarters last Thursday—a move that had stoked fresh doubts over the Fed’s independence just as markets were debating the central bank’s next step.
Central banks on pause
June’s FOMC Minutes revealed a split Fed: some policymakers favoured preemptive rate cuts, while others preferred to wait and see if tariffs kept inflation firm. A stronger‑than‑expected June CPI reading has tilted Chair Jerome Powell toward caution, and futures markets still price in easing later this year—but Wednesday’s meeting is widely expected to deliver another hold.
Over at the European Central Bank (ECB), President Christine Lagarde left rates unchanged and struck an upbeat tone, describing the eurozone economy as being in “a good place” with growth solid or even “a little bit better.” That view has pared back market bets on an autumn rate cut, with traders now putting only an 80% probability on a move—and possibly not until spring.
Speculators shuffle positions
CFTC data to July 22 shows speculators trimming their net long EUR bets to about 125.5K contracts—their lowest in two weeks—while institutional hedgers pared back shorts to roughly 177.7K contracts. Yet overall open interest has climbed for five straight weeks to near 843.5K contracts, underscoring high market engagement.
Technical views
On the upside, EUR/USD must clear its 2025 high of 1.1830 (July 1) to target the September 2021 peak at 1.1909 (September 3)—and perhaps dare the symbolic 1.2000 barrier.
On the other hand, near‑term support sits at the July base of 1.1518 (July 29), seconded by the weekly trough at 1.1445 (June 19) and the transitory 100‑day SMA at 1.1344.
Momentum indicators remain mixed: the Relative Strength Index (RSI) has dipped to nearly 40, suggesting room for further losses, while the Average Directional Index (ADX) around 21 hints that no decisive trend has yet taken hold.
EUR/USD daily chart
Looking ahead
With trade tensions still simmering and central bank signals diverging, the pair’s recent gains have been hard‑won. A truly dovish Fed pivot—or signs of a thawing trade war—would be needed to spark a reversal in EUR/USD in the shorrt-term horizon.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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