EUR/USD has entered 2025 on a weaker footing, with the euro facing pressure from contrasting monetary policies between the Federal Reserve and the European Central Bank. The stronger US dollar has added to the downward trend, while traders look to key support levels for clues about the next move, as oversold conditions hint at potential opportunities.
Bearish momentum dominates
EUR/USD commenced 2025 with notable bearish momentum, breaking below the critical psychological level of 1.0300 for the first time since late 2022.
The pair’s decline to 1.02244 underscores persistent selling pressure, largely driven by contrasting monetary policies between the Federal Reserve and the European Central Bank (ECB).
The euro has kicked off the year on a grim note, and hedge funds see it hurtling toward parity with the dollar — if not lower — in the coming months https://t.co/JfoULJGXlI
While the Federal Reserve is expected to lower rates by only 44 basis points this year, the market predicts a more aggressive reduction of 100 bps from the ECB. This widening interest rate gap has bolstered the US dollar, maintaining downward pressure on EUR/USD.
Technical analysis
On the technical front, EUR/USD stabilised around 1.02729 after rebounding from an intraday low of 1.02244. The pair encountered early selling pressure but found robust support near 1.022, allowing for a modest recovery.
EUR/USD consolidates near 1.027 as momentum stabilises, as seen on the VT Markets app.
The 1.0200 level, aligning with the 23.6% Fibonacci retracement of the 2021-2022 trend, stands as a key support zone. Historically, this level has played a pivotal role:
The 61.8% retracement capped the highs of 2023.
The 38.2% retracement offered support in April 2024 and acted as resistance in December.
With recent lows hovering near 1.0200, this area could draw buyer interest, particularly as the pair appears oversold.
The MACD histogram also signals diminishing bearish momentum, indicating the potential for a rebound.
Outlook
As EUR/USD consolidates near its recent lows, traders may expect further sideways movement before a clear directional trend emerges.
A recovery towards 1.0300 could unfold if buyers capitalise on the support levels. Conversely, if bearish momentum intensifies, sellers may push the pair towards 1.0200 or lower.
While the medium-term outlook remains shaped by the policy divergence between the Fed and the ECB, oversold technical indicators suggest short-term volatility could create trading opportunities in either direction.
