EUR/USD stays strong near 1.1250, influenced by Moody’s recent downgrade of the US credit rating, which affects the US Dollar. The US Dollar Index continues to fall, sitting close to 100.00. Moody’s downgrade from Aaa to Aa1 highlights worries about the US’s $36 trillion government debt, which could lead to increased capital costs. There are concerns that the US debt situation may worsen, especially with financial bills adding trillions. The strength of the US Dollar is under scrutiny due to unpredictable tariff policies from Washington. Additionally, tensions between the US and China are affecting the Dollar, as China criticizes US trade actions as unfair.

Euro Resilience Supports EUR/USD

The strength of EUR/USD is bolstered by the Euro’s resilience, despite inflation risks in the European Union. The EU’s recent forecast predicts inflation will hit the 2% target by mid-year. The European Central Bank warns about inflation risks, and officials have expressed their concerns. Upcoming HCOB PMI data could further shape market trends, with expectations of growth. Current currency movements indicate Euro strength, especially against the Australian Dollar. Technically, the outlook for EUR/USD is positive, with potential resistance at 1.1425 and support at 1.1000. The 20-day EMA is a key level, and the RSI shows traders are uncertain. With EUR/USD trading comfortably above 1.1250, recent price movements reveal that markets are still adjusting to the implications of the US’s credit rating downgrade. Moody’s shift from Aaa to Aa1 brings new challenges, particularly higher expected borrowing costs for the US. The $36 trillion debt is now a significant concern; markets are weighing how much they can ignore, and patience is running thin. As the US Dollar Index approaches 100, its effects are spreading across asset classes. While this level does not signal a complete breakdown, it represents a noticeable shift from previous strength. The conclusion is clear: global confidence in the US Dollar’s stability is beginning to weaken. This situation is not solely due to Moody’s, although it adds complexity. Washington’s inconsistent stance on tariffs and unpredictable fiscal policies create uncertainty.

Trade Policy Uncertainty

Uncertainty in trade policy is worsening the situation. Tariffs have shifted from being long-term levers to short-term distractions. China has responded strongly, increasing tensions and presenting another factor for markets to consider. The US position could become unstable, impacting broader Dollar sentiment beyond just trade. On the other hand, the Euro is performing better than expected. Resilience in the Eurozone is supported by medium-term inflation expectations. The European Commission projects inflation will reach the 2% target by summer, boosting confidence in the Euro. While inflation isn’t completely under control, cohesive communication from policymakers has helped the Euro avoid the doubts now facing the Dollar. The European Central Bank has adopted a more balanced tone. While it remains concerned about inflation risks, it is not delivering mixed messages. This clarity is crucial for predicting currency strength. The upcoming HCOB PMI numbers will be closely monitored. If they align with expectations and indicate growth, it may further strengthen the Euro, especially as sentiment data has been more positive than anticipated in some member states. Traders focused on technicals will notice that EUR/USD is establishing a clear short-term trend. The 1.1425 level will be a significant test; if it is surpassed, the upward momentum could increase. For now, the 20-day exponential moving average serves as a key indicator of momentum. Traders watching this level should pay attention to price reactions before taking on more risk. Price fluctuations in this range suggest traders are still processing the overall narrative. The Relative Strength Index near neutral indicates a cautious approach. With no strong momentum, sharp moves may occur once the market gains confidence. Until then, making risky trades seems unwise, especially with heightened news risks. One area likely to see more short-term movements for traders is EUR/AUD, where the Euro is showing strength. This illustrates that the Euro’s strength extends beyond its performance against the Dollar. Growing confidence in EU forecasts and potential improvements in regional data are driving investment into the Euro. In the coming weeks, it will be essential to monitor discussions around US fiscal policy and any changes in messaging from Frankfurt. We should regard the ECB’s inflation concerns seriously; if these risks materialize, the supportive narrative for the Euro could weaken. However, for now, the pair is buoyed by US Dollar weakness and moderate support for the Euro. This trend may continue, as long as incoming data does not disrupt expectations significantly. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now