EUR/USD Technical Outlook: Is EUR/USD Poised for Potential 800-pip Rally? – Action Forex
- EUR/USD has seen a recent rally driven by market reactions to the incoming Trump administration.
- A divergence exists between technical analysis, suggesting further upside potential, and fundamental factors, pointing towards potential weakness due to policy divergence between the ECB and FED.
- Key support levels for EUR/USD are 1.0425, 1.0350, and 1.0293, while resistance levels are 1.0500, 1.0600, and 1.0700.
EUR/USD Fundamental Backdrop
EUR/USD has been on an offensive since Monday but does appear to be running out of steam. There are both technical and fundamental factors currently to consider and this makes EUR/USD an even more intriguing prospect to analyze.
The obvious factor behind the moves this week has been the incoming US administration under Donald Trump as markets continue to grapple with the prospect of tariffs and its impact on the US Dollar. Just yesterday President Trump vowed duties on European imports without giving much detail adding to market uncertainty.
However, there is also a growing belief that policy divergence may be even more severe under a Trump Presidency especially if the tariff threat becomes a reality. ECB policymaker Villeroy has attempted to downplay this by saying that a decoupling between the ECB and FED on rate is not an issue.
However, if this gap widens EUR/USD risks dropping below parity as sluggish growth and a host of problems continue to plague Europe’s largest economies. According to LSEG data, markets are currently pricing in around 95 bps of cuts from the ECB through December 2025, while pricing in around 39 bps for the Federal Reserve over the same period.
If this gap continues to widen, the Euro may lose significant ground to the Greenback which could affect every consumer and ratchet up pressure on the ECB.
Technical Vs Fundamental Outlook – Growing Divergence
There has always been a school of thought that the Technical and Fundamental pictures when looking at any instrument kind of complement each other. Off late however, EUR/USD has seen this case put to the test as the movement of EUR/USD this week is at odds with the overarching fundamentals discussed above.
The move unfolding in EUR/USD has been touted a s potential deeper retracement following the protracted selloff that began at the back-end of September. However, looking at the technicals, both price action and chart patterns are hinting at the start of a big move to the upside.
Technical Analysis on EUR/USD
EUR/USD Daily Chart, January 22, 2025
Source: TradingView.com (click to enlarge)
Looking at EUR/USD daily chart above and as you can see EUR/USD appears to have bottomed out on January 13 before beginning its impressive move higher.
The move was sparked by President Trump on Monday where EUR/USD rose around 120 pips or 1.45%. What intrigues most about the pair is where price currently rests. Price is testing the long-term descending trendline with a daily candle close above likely to encourage bulls and thus stimulate more buying pressure.
EUR/USD Four-Hour (H4) Chart, January 22, 2025
Source: TradingView.com (click to enlarge)
Dropping down to a four-hour chart, we have already had a candle close above the trendline, a retest and continuation with a fresh high on the H4 chart printed this morning.
All of this bodes well for further upside despite the fundamental picture as mentioned.
If EUR/USD is able to sustain its bullish advance, immediate resistance rests at the 1.0500 handle before the 1.0600 and 1.0700 levels come into focus.
A rejection here, or failure to kick on could leave EUR/USD vulnerable to retest key support at 1.0425 before the 1.0350 and 1.0293 handles come into focus.
Support
Resistance
