The EUR/USD remained above the key support level of 1.0400 during the European trading session, continuing the strong rebound momentum of Tuesday's North American trading session. The market is evaluating the latest tariff plan of the US government to seek new trading opportunities.

In the past two days, US President Donald Trump announced that he will impose a 25% tariff on Mexico and Canada starting from February 1st. Meanwhile, Trump has threatened to address the trade imbalance between the EU and the US by increasing tariffs to encourage Europe to purchase more American oil and gas, but specific measures have not yet been clarified.

Trump's tariff declaration is much milder than his aggressive promises during the campaign, which has reduced the market's safe haven demand for the US dollar. The US dollar index is currently trading near the recent low of 107.80, indicating a cautious attitude towards demand for the US dollar in the market.

Market drivers of EUR/USD

Although the euro/dollar has rebounded significantly in recent trading days, there is still uncertainty about its future trend. On the one hand, Trump's threat to impose tariffs on the European Union poses potential risks to the euro; On the other hand, the European Central Bank's plan to further relax policies to approach the neutral target interest rate of 2% may also have an impact on the euro.

In response to Trump's tariff threat, EU ministers have stated that it should be addressed by improving competitiveness and developing capital markets, rather than taking retaliatory measures. European Central Bank President Christine Lagarde stated in an interview during the World Economic Forum (WEF) that Europe must be prepared for any US tariffs, and added that these tariffs may be more "selective".

In addition, the trade relationship between the European Union and the United States has further deteriorated due to Trump's withdrawal from the Paris Climate Agreement, which requires member states to set their own emission reduction targets, exacerbating tensions between the two sides.

Monetary policy expectations

In terms of monetary policy, the market expects the European Central Bank to cut interest rates consecutively by 25 basis points in the next four meetings. Yannis Stournaras, the European Central Bank policy maker and Governor of the Bank of Greece, stated that interest rates should be reduced by 25 basis points each time, approaching 2% by the end of 2025. Stuart also warned that the potential tariffs imposed by the United States would accelerate the pace of interest rate cuts in the eurozone, which could further dampen the attractiveness of the euro.

Technical analyst interpretation:

On Wednesday, the euro/dollar traded near its recent high of 1.0450 during the European trading session and successfully rebounded from the two-year low of 1.0177 set on January 13th. The recent rebound of the exchange rate is due to the divergence between price and momentum. On the 14th, the Relative Strength Index (RSI) reached a higher low point, while prices recorded a lower low point. If the exchange rate can continue to break through the resistance level of 1.0440, it will confirm the end of this divergence and further support the rise of the euro.

Short term and long-term technical signals

The short-term technical performance of EUR/USD has improved and has now risen above the 20 day moving average of 1.0358, indicating strong buying interest in the near future. However, in the long run, the trend of EUR/USD remains bearish as the 200 day moving average is still at 1.0700 and showing a downward trend.

Interpretation of Support and Resistance Levels

From a technical support perspective, the low point of 1.0175 on January 13th is currently a key support area. If it falls below this level, the euro may come under further pressure and even test lower support levels. On the contrary, from the perspective of resistance level, the psychological barrier of 1.0500 is the key obstacle that bulls need to break through. If it can break through 1.0500, it may attract more buying power and provide momentum for further appreciation of the euro.

summary

From a fundamental perspective, the euro/dollar has recently benefited from the market's moderate interpretation of the US tariff plan and the expectation of future easing policies from the European Central Bank. However, Trump's potential tariff threat against the European Union and the potential pace of interest rate cuts in the eurozone have added uncertainty to the medium-term trend of the euro.

On a technical level, the short-term outlook for EUR/USD has improved, but the long-term trend remains bearish. In the short term, 1.0175 is the key support level and 1.0500 is the key resistance level. In the future, market focus will be on the progress of US tariff policies and the specific actions of the European Central Bank in policy adjustments, which will have a significant impact on the trend of the euro/dollar.