On Thursday, the euro (EUR) was trading just above 1.1700 against the dollar (USD), experiencing a decline of around 0.65% for the week. Investors are waiting for a speech from European Central Bank (ECB) President Christine Lagarde later in the day, while also anticipating the results from the two-day summit between U.S. President Donald Trump and Chinese President Xi Jinping.
This week, the dollar has been on the rise, driven by increasing expectations that the U.S. Federal Reserve may need to raise interest rates by late 2026 or early 2027. This is largely due to rising energy prices adding to inflation, along with safe-haven investments amid ongoing tensions in Iran.
Recent data from the U.S. Producer Price Index (PPI) underlined these concerns, with an increase of 1.4% in April, which is double the 0.7% rise seen in March. The year-over-year rate sped up to 6%, marking the highest level since December 2023. These numbers follow positive Consumer Price Index (CPI) data and further pressure the U.S. Federal Reserve to consider interest rate hikes.
Futures markets are currently indicating a 31% likelihood of a rate hike in December, which is an increase from 22% just a week ago, based on the CME Fed Watch Tool. This shift in expectations has contributed to rising U.S. Treasury yields, lifting the dollar across the board this week.
In the eurozone, Spain’s Harmonized Index of Consumer Prices (HICP) rose 3.5% year-on-year in April, up from 3.4% in March, confirming ongoing inflationary pressures related to the Middle East conflict. The spotlight now shifts to Christine Lagarde’s speech in Aachen, Germany, where she may shed light on the timeline for the ECB’s next interest rate hike, which markets are currently estimating for June or July.
Technical analysis: Euro remains in a bearish trend around 1.1700
Analyzing the technical aspects on the 4-hour chart, it appears that EUR/USD is maintaining a short-term bearish outlook. The Moving Average Convergence Divergence (MACD) indicator shows negative readings, though they seem to have become slightly less negative recently. Meanwhile, the Relative Strength Index (RSI) remains beneath the midline, indicating ongoing downward pressure.
On the upside, resistance might be found around Wednesday’s high of 1.1740, followed by the top of the trading range from the past three weeks around 1.1795, and the April high of 1.1851.
Conversely, the 1.1700 level provided support on Thursday, keeping sellers away from a critical support zone between 1.1645 and 1.1675, which has seen attempts to decline several times in April. A confirmed break below these points would likely shift focus to the April low of 1.1510.
(Part of the technical analysis in this article involved the use of AI tools.)
ECB FAQ
The European Central Bank (ECB) is located in Frankfurt, Germany, and serves as the reserve bank for the euro area. Its main responsibility is to set interest rates and direct monetary policy with the aim of maintaining price stability—keeping inflation around 2%. It typically adjusts interest rates as a means to achieve this. Higher interest rates usually result in a stronger euro, and the Governing Council of the ECB makes key decisions during its eight annual meetings. These include the heads of national banks from the eurozone and six permanent ECB members, one of whom is Christine Lagarde, the president.
In certain extreme situations, the ECB can impose a policy known as quantitative easing (QE). In QE, the bank essentially creates euros to purchase assets—usually government and corporate bonds—from banks and financial institutions. This typically leads to a weaker euro. QE is considered a last resort when maintaining price stability cannot be achieved through lower interest rates alone. The ECB utilized this strategy during the financial crisis from 2009 to 2011, as well as in 2015 when inflation remained persistently low, and during the pandemic.
Quantitative tightening (QT) is essentially the reverse of QE. This occurs after QE has been employed, once the economy is recovering and inflation starts to increase. While QE involves the ECB buying bonds to inject liquidity into the market, in QT, the ECB halts further bond purchases and does not reinvest the matured principal from its existing bond holdings. Typically, QT is seen as supportive of the euro.
