Traders to Keep an eye on ECB and Fed for EUR/USD direction cues
As 2025 moves forward, the EUR/USD is at an important point. This is due to different monetary policies, changing tariffs, and shifting economies. The pair is trading around 1.12 in May 2025. It is likely to see volatility for the rest of the year. Medium-term indicators suggest that bulls will favor 1.02. In this article, we will examine the technical and fundamental factors that affect the euro and the dollar. We will also provide important insights for traders.
The European Central Bank and the Federal Reserve (Fed) have recently responded differently to inflation, politics, and growth. The ECB interest rate is now 4.00 percent. This follows a long period of increases that started in mid-2022. Meanwhile, the Fed has kept its rate at 5.25 percent after raising it aggressively in 2022 and 2023. At the same time, Eurozone inflation still lingers around 3.1 percent with weak growth. In the U.S. inflation has been more persistent paired with rising housing costs.
The dovish rate path of the ECB leads to expectations for a cooling Euro-area economy. In June 2025, expectations of ECB rate shift significantly lower, with 2.0 percent and 1.75 percent taking majority. Predictions of a deposit rate of 1.5 percent or lower suggest that the EUR/USD may weaken. This will happen unless the Fed matches or exceeds this rate, which seems unlikely.
Technical Analysis
EUR/USD Weekly Chart
Technical analysis of the most traded currency shows a positive trend. It has support at 1.06 and a strong floor from 2023 at 1.02. The 200-day simple moving average also favors bulls, trending upward and validating longer-term bias unless broken. Furthermore, Moving Average Convergence Divergence is above the signal line, confirming upward momentum.
If the ECB cuts rates before the Fed, the Euro may drop against the dollar. Bears are watching the weekly trend line support at 1.06. If consumer prices in the U.S. decrease and the Fed cuts rates before the ECB, traders should consider more gains. The pair could reach the 78.6 percent Fibonacci retracement level of 1.18.
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Ronald Francois
Ronald is a senior market strategist at Sigmanomics.com, bringing over a decade of hands-on experience in equity markets and three years of specialized expertise in options trading. Known for his sharp fundamental analysis and deep understanding of macroeconomic trends, Ronald provides readers with actionable insights that bridge the gap between institutional strategy and individual investor needs.
