THE euro-dollar (EURUSD) FX pair, the most traded foreign exchange (FX) pair by volume, has experienced heightened volatility in the first quarter of 2025. The pair moved from the 1.02 levels to 1.09 levels, marking a 700 pips movement, and is now trading around 1.10 up from 1.08 at the end of March 2025. During the height of the US reciprocal tariffs dispute, the EURUSD ranged between 1.11 and 1.09, reflecting market sensitivity to geopolitical and economic developments.
Historically, the EURUSD pair has seen sharp movements in response to tariff-related announcements by the US. On Mar 5, 2025, the EURUSD recorded a large movement of over 200 pips following US President Donald Trump’s comments on imposing tariffs on neighbouring trade partners. A similar spike occurred on Apr 3 after the formal announcement of reciprocal tariffs. The euro also experienced a bull run in 2024, underpinned by positive GDP growth, although Germany, Europe’s largest economy, lagged behind the bloc’s broader recovery.
The US Federal Reserve remains hawkish on controlling inflation with its target set at 2 per cent. However, the tariff-induced inflation and increase in US unemployment, stemming from corporate layoffs, leave the Fed in a difficult situation deciding whether to slow or increase rate cuts. The Fed is now caught between the need to support the labour market and contain inflation, and to adopt a wait-and-see approach pending further data.
In contrast, the European Central Bank (ECB) cut interest rates by 25 basis points, in anticipation of a slowdown in economic growth and the potential impact of reciprocal tariffs on the eurozone economy. Even so, the rise in uncertainty over whether the tariffs would commence is disrupting ECB’s forecast, bringing more volatility to the EURUSD.
At the time of writing on Apr 10, major levels to watch for EURUSD include 1.10 and 1.00. The 1.00 level
was more actively traded in recent years and served as a psychological anchor. A break from this level back to the 1.1 range will signal a weakening in the dollar dominance, with the euro’s resurgence partly rooted in its original objective -to promote European trade and reduce dependence on the US dollar as the world’s reserve currency.
Looking at the chart in intervals of 100 pips, it currently shows, at the time of writing, that the price had just broken out from the 1.08 range, away from the 20-day Exponential Moving Average (EMA). Historically, the 1.09 level acted as a repeated resistance level, while the 1.00 level has been a key level where prices tend to move through to find new support/resistance and settle around every 100 pips.
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Bullish case
The last significant bullish move was from an ascending triangle pattern breakout from 1.05 to 1.08 in March, after Trump’s speech. Subsequently, “Liberation Day” added momentum, pushing the EURUSD to the 1.09 level. Technically, the current Moving Average Convergence Divergence (MACD) indicator shows a newly formed uptrend, though some exhaustion is apparent. A bullish continuation would require higher highs in price action and a MACD line above the signal line. Long positions may be considered if the price remains above 1.00 and the 20-day EMA, with MACD confirming momentum.
Bearish case
Resistance at 1.12 held firm in 2024. If prices are not supported above the 1.11 line, a reversal is likely to occur, pushing prices back to the 1.09 level. A weakening MACD line turning negative, followed by the signal line would support the bearish case. Short positions could be considered below 1.00 if a daily candle closes below the 20-day EMA, accompanied by a sharp decline in the MACD.
The writer is dealer, Contract For Differences, at Phillip Securities
