The EUR/USD pair has declined by approximately 2% since the beginning of the year to date, making the euro the worst performing currency among the G10 currencies so far this year. The EUR/USD pair is currently trading near the 1.1550 level.
Recently, weak European economic data has been released. Eurozone consumer confidence declined sharply, recording a contraction of about 16.3 points, which came below expectations (-15.0) and the previous reading (-12.3). Meanwhile, the unemployment rate rose to 6.2%, higher than both expectations and the previous reading of 6.1%. In addition, the composite Purchasing Managers’ Index declined across the Eurozone, Germany, and France during March. German business expectations and the IFO Business Climate Index also declined, signaling continued weakness in Europe’s largest economy, Germany.
The European economy continues to suffer from noticeable weakness, as it has not fully recovered in a normal way since the COVID-19 pandemic. There are also expectations for further economic slowdown, alongside rising inflation pressures. Inflation recently reached 2.5% year-on-year, the highest level since January 2025. This could push the Eurozone toward a stagflationary environment in the coming period, especially with the continued rise in energy prices such as crude oil and natural gas. As is well known, European countries are net importers of energy, which negatively impacts their economies and increases inflationary pressures.
In contrast, the US Dollar Index continues to show strength, rising about 2% since the beginning of the year and reaching 100.64 points on Tuesday, the highest level since May 19, 2025. It is currently trading near the key psychological level of 100. The rise in the US Dollar Index is mainly driven by two factors:
First, the US dollar is considered a safe-haven asset.
Second, the continued rise in energy prices could further fuel inflation. Recent inflation readings, including Core PCE and Core PPI for February, already showed increases even before the outbreak of the war, which is a concerning signal. The ongoing conflict could push inflation even higher. As a result, expectations suggest that interest rates may remain elevated for a longer period or could even rise further.
Expectations also indicate that the European Central Bank may raise interest rates twice this year in an attempt to curb the expected increase in inflation during the coming period.
Markets are closely watching today at 16:30 UAE time for the release of key US labor market data, including Non-Farm Payrolls, the unemployment rate, and average hourly earnings. Forecasts suggest that the US economy added 65,000 jobs in March after losing 92,000 jobs in February. The unemployment rate is expected to remain unchanged at 4.4%. Meanwhile, analysts expect average hourly earnings to rise by 3.8% year-on-year, in line with the February reading. Therefore, caution is warranted, as any reading that comes above expectations for jobs and wages, and below expectations for the unemployment rate, could weigh negatively on the EUR/USD pair.
From a technical perspective, a bearish crossover has occurred between the 20-day moving average and the 50-day moving average, which may indicate a downward trend for the pair. The Relative Strength Index is currently around 46, reflecting negative momentum.
If the pair breaks below the pivot point at 1.1552, it may target support levels at 1.1498, 1.1455, and 1.1401. However, if it moves above the pivot point, it could target resistance levels at 1.1595, 1.1649, and 1.1692.
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
