The EUR/USD pair slipped to a fresh two-year low near 1.0200 on Monday, continuing its downward trend as the US Dollar (USD) surged amid rising bond yields. The US Dollar Index (DXY), which tracks the Greenback against six major currencies, jumped to nearly 110.00, the highest level in over two years. At the same time, 10-year US Treasury yields approached a yearly high, trading around 4.75%.
The recent rally in US bond yields comes amid growing speculation that the Federal Reserve’s (Fed) policy-easing cycle has paused for now. Expectations for rate cuts were dampened following the release of strong US Nonfarm Payrolls (NFP) data for December, which revealed a significant increase in new jobs and a drop in the Unemployment Rate. Bank of America (BofA) noted in a report that, with a resilient labor market, the Fed’s cycle of rate cuts may be over, citing robust economic activity and risks to inflation skewed to the upside.
According to the CME FedWatch tool, the Fed is unlikely to implement any rate cuts before its June policy meeting, leading to further strength in the USD.
As the week progresses, attention will shift to US Producer Price Index (PPI) and Consumer Price Index (CPI) data for December, due for release on Tuesday and Wednesday, respectively, with investors hoping for further clues about future inflation trends.
EUR/USD is facing significant selling pressure, primarily driven by a risk-off mood that has weighed heavily on the Euro. Market sentiment has soured amid fears that protectionist policies under President-elect Donald Trump’s administration could lead to a global trade war, diminishing the appeal of risk-sensitive assets. Trump’s threat to impose tariffs on the European Union, especially if the EU does not increase its purchases of American goods, has added to market anxiety.
Domestically, expectations of further policy easing by the European Central Bank (ECB) have put additional pressure on the Euro. In a policy discussion at the Asian Financial Forum (AFF) 2025, ECB Chief Economist Philip Lane suggested that the central bank may need to cut rates further to prevent the economy from slowing too much. He also emphasized the need for the ECB to adopt a balanced approach, avoiding being either too aggressive or too cautious in its policy stance this year.
From a technical perspective, EUR/USD is testing key support at 1.0200, which corresponds to the high from September 2022. The pair’s outlook remains bearish, with the 20-week Exponential Moving Average (EMA) at 1.0580 continuing to decline. The 14-week Relative Strength Index (RSI) has dropped below 30, indicating strong downside momentum.
Support for EUR/USD may be found near the psychological level of 1.0100, while the January 6 high of 1.0437 will be the key resistance for any potential recovery.
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