EUR/USD Breaks Above Key Levels as Fed Cuts, Stock Market Volatility Drive Euro Momentum

EUR/USD (EURUSD) Holds Above 1.1640 as Bulls Eye 1.1720 Despite Tariff Chaos and Dovish Fed Pressure

Rate Path Confusion and Tariff Tensions Undermine Dollar While Euro Reclaims Technical Ground

The EUR/USD (EURUSD) pair is navigating a complex macro and technical landscape, bolstered by resilience in eurozone fundamentals while facing external volatility from Washington. The pair is currently hovering near 1.1640–1.1668, recovering from a mid-July dip that saw support hold at 1.1600, a level fortified by the 1.618 Fib retracement and a strong historical demand zone. This recovery is now testing overhead resistance near the 50-EMA (1.1653) and 100-EMA (1.1655). A clean break above both would confirm a reversal structure and pave the way toward 1.1720, 1.1765, and 1.1815, key horizontal and prior high levels.

Despite the bullish technical undercurrent, sentiment remains capped by macroeconomic crosswinds. President Trump’s threat of 15–20% EU tariffs by August 1 is forcing investors to price in a significant hit to global trade. While Commerce Secretary Lutnick offered tentative reassurance over negotiations, the market remains unconvinced. Traders are reacting more to Trump’s combative stance, which is weighing heavily on the dollar and lifting demand for the euro by default.

ECB to Pause as BofA Forecasts EUR/USD at 1.17 by Year-End

Bank of America reaffirmed its EUR/USD year-end target of 1.17, citing a combination of U.S. policy uncertainty and eurozone stability. The forecast is not derailed by the ECB’s expected rate cuts in September and December—each by 25bps—taking the terminal deposit rate to 1.50%. Interestingly, BofA expects a reversal in ECB policy by 2027, with two rate hikes bringing the rate back to 2.00%. This suggests that investors are looking past the short-term easing cycle and valuing long-term credibility and macro health within the euro area.

Recent surveys by the ECB indicate that while European businesses are generally optimistic, trade risk remains the biggest concern. That concern is unlikely to fade until clarity emerges around tariffs and Thursday’s upcoming ECB rate decision, which is expected to maintain the current stance but may include guidance from President Lagarde addressing inflationary threats and external shocks.

Technical Setup Strengthens: RSI, SMAs, and Breakout Potential

Momentum indicators are flashing early bullish signals. The RSI has reclaimed the neutral 50 line and is pushing toward 66, indicating momentum is rising but not yet overextended. EUR/USD has already broken above the 30-SMA, shifting near-term structure in favor of the bulls. Price also breached a descending channel near 1.1668, converting a key resistance ceiling into new structural support. The short-term trajectory now hinges on confirming a breakout through the 1.1655–1.1720 zone. Above this, upside opens toward 1.1815, the June high.

Support levels are clearly defined. If EUR/USD stalls, downside watch zones include 1.1621 (50-SMA), 1.1583, and 1.1535, which align with prior support shelves and historical imbalance zones. Failure to hold 1.1520 risks a full unwind toward 1.1310, where the 100-day EMA and long-term trendline support converge.

Fed Dovish Shift Weakens Dollar as Traders Reprice Cuts

The Federal Reserve’s policy outlook is now the second critical variable in the EUR/USD equation. Last week’s U.S. data showed surprising strength in housing starts (+4.6%) and consumer sentiment (61.8), but this hasn't reversed the tide of dovish rhetoric from Fed members. Governor Christopher Waller suggested a preemptive July rate cut, citing labor stress, while President Trump amplified pressure by attacking Powell’s leadership and demanding more accommodative policy.

Despite that, futures markets still assign a 94% probability of a hold at the July meeting. The divergence between Fed communication and market pricing reflects elevated uncertainty. The Dollar Index (DXY) has fallen to 98.25, approaching critical support at 98.15, with further downside risk toward 97.83 and 97.55 if tariff escalation and dovish Fed commentary persist. This weakness directly benefits EUR/USD as capital rotates away from the greenback.

Macro Fundamentals Reinforce Euro's Relative Strength

Unlike its American counterpart, the euro area continues to dodge a recession. Consumer resilience, stable labor data, and improving business surveys reinforce the euro’s standing. The stock market backdrop in Europe remains less volatile than the U.S., where tariff-induced anxiety and political instability dominate headlines.

Euro bulls are emboldened not only by technical recovery but also by the narrative of long-term policy discipline. The ECB’s plan to eventually reverse easing in 2027, even as it embarks on near-term cuts, offers a long-horizon policy path that investors can price in today. Combined with the Fed’s reactive stance and Washington’s trade unpredictability, the case for a stronger euro remains credible.

Verdict: EUR/USD (EURUSD) Bullish Bias Holds With Caution Around 1.1720 Breakout

All key technical levels, macro drivers, and central bank policy clues align in favor of the EUR/USD pair moving higher—provided resistance at 1.1720 breaks cleanly with volume. The case is supported by RSI strength, moving average alignment, and the deterioration of the U.S. dollar narrative. Should bulls fail to hold 1.1640–1.1668, caution is warranted as the pair risks reverting to 1.1535 or even 1.1310. However, the overarching trend remains upward. The decision: Buy, with risk managed tightly below 1.1580, and a short-term upside target of 1.1815 in alignment with structural levels and bank forecasts.

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