15.05.202500:37 Forex Analysis & Reviews: The Euro Is Losing Direction

Inflation in the eurozone remained at 2.2% in April, slightly above the 2.1% forecast, due to a somewhat stronger increase in core inflation. This rise is partially attributed to the impact of Easter, which typically boosts consumer demand. However, the apparent slowdown in average wage growth is an opposing factor influencing prices.

Overall, it can be assumed that core price pressures are easing both in the U.S. and the eurozone, so the European Central Bank will continue to cut rates—no changes are expected in this outlook. The only question is the pace of this easing. Currently, the market sees the ECB and the Federal Reserve on balanced paths in terms of rate cuts, and the current euro valuation reflects this balance.

A positive factor for the euro is the growing optimism in the economy. Germany's ZEW economic sentiment index jumped sharply in April by 39.2 points, reaching 25.2. This indicates a noticeable dominance of optimism and growing domestic demand, which is expected to pull the German economy out of stagnation. This contrasts with the very cautious forecasts in the U.S., where sentiment remains divided between expectations of an imminent recession and hopes for a production surge driven by Fed rate cuts and a shift in trade policy.

Market sentiment remains optimistic, but its durability is questionable. Even if the U.S. and China agree on mutually beneficial tariff terms during negotiations, it is unlikely that the U.S. will fully comply. This view currently dominates among Chinese analysts. It is based on historical precedent and the prevailing climate of mistrust that has taken hold since Trump came to power. As a result, any agreement will likely be fragile, limited in scope, and vulnerable to collapse. Add to this the persistent threat of a U.S. recession, and the conclusion is discouraging: the current market enthusiasm is unlikely to last.

Net long positions in the euro have slightly adjusted to €10.76 billion. Speculative positioning remains bullish, but the calculated fair value currently lacks a clear direction.

The EUR/USD pair failed to stay above the 1.1233 support level, retreating on news of a U.S.–China tariff agreement, but quickly bounced back to that level. At present, there is no clear directional bias. The U.S. inflation report supported the rally, which increased the likelihood of a Fed rate cut. However, the eurozone has not yet provided any internal drivers for further euro strengthening.

Later this week, GDP and employment data for Q1, along with the March trade balance, are expected. Additionally, several ECB officials are set to comment on the current economic situation, which could bring more clarity. For now, there is no trend, and a sideways trading range seems more likely. The 1.1066 support level appears solid and is not expected to be breached, while a rise toward the local high at 1.1574 currently lacks sufficient grounds for realization.