Euro Weakens Against Resurgent Dollar, Eyes on Tomorrow PMI

Key Takeaways:

*Euro pressured as the dollar rallied over 1% after Powell framed the Fed’s first 2025 cut as risk management rather than a dovish pivot.

*Inflation undershot forecasts at 2%, tempering support for the single currency despite stable bloc-wide dynamics.

*Traders eye eurozone PMI tomorrow and the ECB policy decision Wednesday as the next catalysts for volatility.

Market Summary:

The euro is facing renewed selling pressure against the U.S. dollar, which strengthened sharply following last week’s Federal Reserve policy decision. Although the Fed cut rates by 25 basis points—its first reduction of 2025—Chair Jerome Powell characterized the move as a “risk management” adjustment rather than the start of an aggressive easing cycle. Markets interpreted the messaging as hawkish, triggering a broad dollar rally that lifted the DXY index more than 1% and weighed on EUR/USD.

Domestic fundamentals also contributed to the euro’s softness. Last week’s eurozone CPI reading came in at 2.0% year-on-year, slightly below expectations and reinforcing the view that inflationary pressures within the bloc remain contained. Nevertheless, the single currency has demonstrated resilience against other G10 peers, supported by the European Central Bank’s predictable policy trajectory and stable economic indicators.

Attention now turns to the ECB’s meeting on Wednesday, which is expected to be the primary driver of near-term euro direction. While no change to rates is anticipated, traders will scrutinize President Christine Lagarde’s communications for signals regarding the timing and pace of future policy moves. Ahead of the meeting, tomorrow’s eurozone PMI data may provide additional insight into the region’s economic momentum.

A dovish tone from the ECB could extend the euro’s decline, particularly if coupled with sustained dollar strength. Conversely, any hint of caution toward further easing may help stabilize the currency near current levels.

Technical Analysis 

EURJPY, H4:

The EUR/JPY pair has maintained a constructive technical posture, trading in a pattern of higher highs and breaking decisively above the key resistance level at 173.75. The pair subsequently underwent a minor retracement but found firm support above this former resistance zone, reinforcing the bullish structure and suggesting underlying strength remains intact.

Momentum indicators, however, present mixed near-term signals. The Relative Strength Index has held near overbought territory for an extended period, reflecting sustained buying pressure. In contrast, the Moving Average Convergence Divergence has generated a bearish crossover—often referred to as a “death cross”—at elevated levels, indicating that upward momentum may be slowing and raising the possibility of a near-term pullback.

This divergence suggests that while the broader trend remains bullish, the pair may be due for a period of consolidation or technical retracement before attempting further gains. Traders are advised to exercise caution at current levels, particularly if the pair approaches additional resistance near the 175.00 psychological level.

Resistance Levels:175.28, 176.55

Support Levels: 172.30, 171.00