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EUR/USD Breaks Out as ECB Hawks Clash with Dovish Fed Expectations
Economic
Summary:
The euro climbs beyond 1.1600 against the dollar for the first time since November 2021, buoyed by dovish Fed expectations, hawkish ECB rhetoric, and rising trade war fears.
Buy
TradingEURUSD
EXP
1.15693
Entry Price
1.19500
TP
1.14000
SL
1.15323 -0.00046 -0.04%
0
Point
Flat
1.14000
SL
CLOSING
1.15693
Entry Price
1.19500
TP
The euro extended its bullish streak on Thursday, breaking above the 1.1600 handle against the U.S. dollar for the first time in nearly three and a half years. This sharp move higher in EUR/USD comes on the heels of mounting market expectations for Federal Reserve rate cuts and a fresh flare-up in global trade tensions ignited by U.S. President Donald Trump.
By midday in Europe, the common currency was trading around 1.1615, its highest level since November 2021, marking a critical technical and psychological milestone for euro bulls. This rally is being driven by a confluence of bearish forces weighing heavily on the greenback, while the euro benefits from renewed monetary policy divergence and investor confidence in the European Central Bank’s (ECB) relatively hawkish tone.
The latest leg lower for the U.S. dollar followed Wednesday’s release of the U.S. Consumer Price Index (CPI), which showed headline inflation rising at a slower-than-expected pace in May. The softer data—particularly in core components—has rekindled bets that the Federal Reserve could pivot to easing as soon as September.
According to CME Group’s FedWatch Tool, futures traders are now pricing in a nearly 60% probability of a 25-basis-point rate cut at the Fed’s September meeting, up from around 50% just a week ago. The shift reflects a broader market reassessment of U.S. monetary policy amid signs that disinflation is gaining traction.
Adding fuel to the dollar’s decline was a fresh wave of trade-related uncertainty. Bloomberg reported that former President Donald Trump, who is running for re-election, has vowed to reintroduce broad tariffs on U.S. trading partners unless new deals are signed by a self-imposed deadline of July 9. His comments have reignited fears of a repeat of the 2018–2019 trade war era, when global growth slowed under the weight of retaliatory tariffs and supply chain disruptions.
Although recent talks between the U.S. and China produced a temporary truce, markets appear skeptical that any lasting resolution is in sight. Instead, traders are increasingly bracing for a return to protectionist policies that could complicate the Fed’s outlook and further weaken the dollar.
While the dollar struggles, the euro is finding solid support from a more assertive stance by ECB policymakers. President Christine Lagarde last week signaled that while a rate cut was delivered in June, the central bank remains data-dependent and will proceed with caution. Since then, several ECB officials have echoed a similar message, warning that inflation risks remain tilted to the upside and further easing should not be assumed.
This contrasts sharply with the dovish shift unfolding in U.S. rate markets. The policy divergence has re-opened yield differentials that favor the euro, particularly against the backdrop of a fragile U.S. macro environment.
“The ECB’s cautious tone and the market’s aggressive pricing of Fed cuts have created the perfect storm for EUR/USD to break out,” said Clara Becker, a senior FX strategist at Saxo Bank. “Unless we see a sharp reversal in U.S. data or a coordinated effort to stabilize trade relations, the path of least resistance remains higher.”
Technical Analysis
From a technical perspective, EUR/USD remains firmly in bullish territory. Thursday’s breakout above the 1.1550 resistance zone reinforces the prevailing uptrend, with momentum indicators such as the Relative Strength Index (RSI) suggesting continued buying interest despite creeping into overbought territory.
The pair is also trading comfortably above the 50-period Exponential Moving Average (EMA50), while maintaining alignment with an ascending support trendline. The bullish bias remains intact as long as prices stay above the former resistance zone at 1.1550, which now acts as support.
A sustained move above 1.1600 could pave the way toward the next key resistance at 1.1650—levels last tested during the pre-2022 tightening cycle. However, traders should be alert to the risk of short-term pullbacks, particularly if the pair struggles to consolidate above the breakout level.
TRADE RECOMMENDATION
BUY EURUSD
ENTRY PRICE: 1.1570
STOP LOSS: 1.1400
TAKE PROFIT: 1.1950
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