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Euro Slides Below 1.1330 as Dollar Rallies on Solid U.S. Data and Hawkish Fed Bets
Economic
Summary:
The EUR/USD pair has come under renewed selling pressure, sliding toward 1.1285 as the US Dollar strengthens following upbeat ISM manufacturing data and persistent inflation fears.
Sell
TradingEURUSD
EXP
1.12800
Entry Price
1.10000
TP
1.14300
SL
1.13172 +0.00301 +0.27%
0
Point
Flat
1.10000
TP
CLOSING
1.12800
Entry Price
1.14300
SL
The euro came under heavy selling pressure on Thursday, sliding decisively below the 1.1330 level and hitting session lows around 1.1285 during North American trade. The sharp drop in the EUR/USD exchange rate marks a critical technical and psychological shift, coming as the US dollar flexes its muscle once again supported by a surprisingly firm manufacturing sector and stubbornly persistent inflation in the United States. In contrast, the euro is facing growing headwinds amid dovish European Central Bank rhetoric and renewed fears of slowing inflation across the bloc.
The dollar’s rebound has been swift and forceful. The US Dollar Index (DXY), which tracks the greenback’s performance against a basket of major currencies, extended its recovery for the second consecutive session, punching through the crucial 100.00 mark a level often seen as a sentiment bellwether in currency markets. This resurgence followed the release of the April ISM Manufacturing PMI, which printed at 48.7, beating analysts' expectations of 48.0. Although the reading remained below the 50.0 threshold that demarcates contraction from expansion, the data was nonetheless taken as a signal of relative resilience, especially considering broader fears of economic softness.
More importantly for markets, inflationary pressure within the manufacturing sector remains elevated. The Prices Paid sub-index climbed to 69.8 from the previous 69.4, indicating that cost pressures on inputs are not easing, but rather intensifying. This uptick complicates the Federal Reserve’s path forward, as it suggests price growth is more entrenched than previously anticipated — a scenario that would likely delay any potential interest rate cuts and strengthen the dollar further in the process.
This follows Wednesday’s release of US GDP data, which revealed that the economy contracted by 0.3% on an annualized basis in the first quarter. It was the first time in three years that the US economy has posted a negative quarter. However, analysts from Morgan Stanley were quick to highlight that the contraction might not tell the full story. They argued that the dip in output was partially masked by inventory distortions, as American firms scrambled to frontload imports ahead of looming tariff hikes imposed by President Donald Trump. The full brunt of those protectionist measures, they warned, would likely manifest more clearly in the coming quarters, with possible ripple effects in hiring, inflation, and consumer spending.
Meanwhile, the geopolitical backdrop continues to offer little reassurance. Trade tensions between Washington and Beijing remain unresolved. In an interview with Fox News, US Trade Representative Jamieson Greer made it clear that no formal negotiations have resumed with China since the latest round of reciprocal tariffs. According to reporting by the South China Morning Post, Greer acknowledged that the current environment is one of “stalemate,” with no near-term dialogue planned an admission that immediately rekindled concerns over the global trade outlook and reinforced safe-haven demand for the dollar.
On the other side of the Atlantic, the euro has been weighed down by rising expectations that the European Central Bank will be the first major monetary authority to cut rates this year. A growing chorus of ECB officials has voiced concern about the downside risks to inflation, particularly as the continent struggles to digest the economic fallout from US trade policy. The ECB’s Deposit Facility rate, currently at 2.25%, is widely expected to be cut by 25 basis points at the central bank’s June meeting. Such a move would not only widen the policy divergence with the Federal Reserve but could also undermine the euro further, particularly if inflation data continues to trend lower.
Indeed, preliminary inflation figures for the Eurozone, set for release on Friday, are expected to confirm the ECB’s concerns. The Harmonized Index of Consumer Prices (HICP) for April is forecast to rise just 2.1% year-on-year, a modest slowdown from the 2.2% pace in March. At the core level — which strips out volatile items like energy, food, alcohol, and tobacco — price growth is seen ticking up slightly to 2.5% from 2.4%. However, national-level data suggests that the disinflationary trend is uneven. While Germany and France reported cooling inflation, Spain and Italy showed more stable price trends, highlighting the fragmented nature of price dynamics within the bloc.
To complicate matters further, recent GDP figures for the Eurozone offered a mixed picture. Eurostat reported that the region’s economy grew 0.4% in the first quarter — a stronger-than-expected print that doubled the growth rate recorded in the final quarter of 2024. Yet analysts caution that these numbers likely do not reflect the full impact of recently imposed US tariffs on European automobile exports, a key sector for the region. As these trade barriers filter through supply chains and corporate profit margins, the case for looser monetary policy in Europe may become more compelling.
From a market psychology standpoint, the current move in EUR/USD is not merely technical — it reflects an increasingly clear macro divergence between the US and Europe. The Federal Reserve, despite a brief pause in tightening, remains in a holding pattern due to sticky inflation, while the ECB appears poised to ease amid softer price pressures and external trade shocks. This policy bifurcation has reasserted itself in currency markets, and barring a dramatic shift in incoming data, it is likely to persist.
Technical Analysis
Technically, the EUR/USD pair has breached key support levels, and the recent drop has been exacerbated by a classic head-and-shoulders pattern breakdown on the short-term charts. The neckline breach reinforced bearish sentiment, and while intraday price action attempted a modest rebound, these efforts have so far failed to reclaim meaningful ground. Momentum indicators such as the Relative Strength Index (RSI) have begun to emerge from oversold territory, suggesting the potential for minor recoveries, but the broader trend remains firmly tilted to the downside.
Unless buyers manage to decisively retake the 1.1360–1.1390 resistance zone, the euro remains vulnerable to further losses. A drop toward the next support level at 1.1260 appears likely, and if that fails to hold, markets may begin to price in a test of the psychologically important 1.1000 level.
TRADE RECOMMENDATION
SELL EURUSD
ENTRY PRICE: 1.1280
STOP LOSS: 1.1430
TAKE PROFIT: 1.1000
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