Analysis and forecast of Euro price this week 12/5 - 18/5
The euro has recovered slightly but still posted its third consecutive weekly decline against the dollar. Markets now expect the ECB to cut interest rates further.
The euro recovered slightly at the end of the week after falling below 1.12. However, the recovery was not enough to change the downtrend of EUR/USD for the week, marking the third consecutive weekly loss.
The main pressure comes from the strong recovery of the US dollar, fueled by positive signals on the trade front. The US Dollar Index (DXY) has broken through the psychological level of 100, although it remains to be seen whether this is a sustainable trend.
The EUR/USD correction also reflects positive sentiment from the US, especially since there have been no announcements of new tariffs. President Trump recently announced a bilateral trade deal with the UK, which will see the US reduce import tariffs on some cars and steel and aluminum products from the UK. However, the 10% tariff will remain on most goods, limiting the impact of the deal.
Optimism was also boosted as US and Chinese officials met in Switzerland for high-level talks. The protracted trade war between the world’s two largest economies, along with the US imposing additional tariffs on many other countries, has disrupted global supply chains and raised fears of a global recession.
Differences in monetary policy between central banks are weakening the euro.
While the US Federal Reserve (Fed) decided to keep interest rates unchanged but maintained a cautious stance, depending on economic data, the European Central Bank (ECB) is moving in the opposite direction.
The ECB cut interest rates by 25 basis points last month, the second cut in the last three meetings, taking its main rate to 2.25%.
Markets now expect the ECB to cut interest rates again as early as June, widening the monetary policy gap between Europe and the US, putting further pressure on the euro against the US dollar.
Technically, EUR/USD has yet to break above the 2025 high of 1.1572. Key resistance levels lie ahead, including the psychological level of 1.1600 and the old high from October 2021 at 1.1692.
On the downside, short-term support lies around the 55-day moving average at 1.1005. If prices fall further, the next strong support levels lie at the 200-day moving average around 1.0791 and the recent weekly low at 1.0732.
Technical indicators also point to a possible correction. The RSI has fallen to near neutrality at 52, while the ADX, an indicator of trend strength, is currently at 41, suggesting that the uptrend is still intact but is weakening.
