Euro Outlook: EUR/USD Snaps Back, Remains Key for USD Trends

EUR/USD Rallies After Powell Threat

It was another big week on the open as the USD sold off against many major currencies, the Euro included, as news circulated that the Department of Justice would be investigation FOMC Chair Jerome Powell for criminal charges based on his testimony last summer regarding the renovations at the Federal Reserve. To say that the announcement was a surprise is an understatement, but, like I had said in the Friday video, it should not be ruled out that Trump would take aim at the USD, especially if the CPI print on Tuesday came out hot.

Well, we got the hammer in the headlines and we still haven’t even gotten to the CPI print, but as more news comes out it now seems that the criminal inquiry may not have been sent by President Trump and, instead, may be sourced to FHFA Director Bill Pulte, who is no stranger to the headlines. He’s also had a role in the criminal inquiry into Lisa Cook as well as being an alleged source of the 50-year mortgage idea, which didn’t seem to go very far. This is relevant because it’s a possible threat to Fed independence, and Jerome Powell discussed that shortly after the news of a criminal inquiry broke.

That has pertinence to the US Dollar as it makes the USD a less viable source of reserve currency flow, and that, in-turn, has relevance to the Euro as the single currency is by far the largest component of the DXY basket.

There’s but one problem, and it’s the fact that the European economy isn’t exactly doing great at the moment. This explains why the bullish trend in EUR/USD that held well in the first-half of last year has been stalled for six-and-a-half months now, with the pair continually finding resistance and sellers in the Fibonacci zone from 1.1686-1.1748.

EUR/USD Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

USD Natural Flows

As looked at in the Friday article the US Dollar has been rather upbeat of late, and this is with the expectation from markets that rates will get cut again in 2026. How much rates might get cut will remain up for debate, but Trump will get to nominate a new Fed Chair and as he’s said in the past, a willingness to cut rates is a ‘litmus test’ for whomever he selects. So, rationally, we’re going to see a dovish Fed chair at the nomination in May, which further questions why Trump would want to take a shot at Powell at this stage and this also illustrates that the direction for a criminal inquiry may have come from elsewhere.

At this point, Trump retains a viable scapegoat should economic data weaken as he can point at ‘too late’ Jerome Powell as reason for the negative performance. He can allege that Powell should’ve been cutting rates earlier last year, and he retains considerable optionality for the next few months in how he can handle economic numbers that aren’t great. Once Powell is replaced, that optionality is gone, and doing so earlier also exposes Trump to a political fight and a possible Supreme Court case. It’s just a messy affair that brings on more risk than possible reward, it seems, and this further points to the fact that the source of the direction may be from someone other than President Trump.

With that said, there’s still the elephant in the room of inflation and that brings importance to tomorrow’s CPI print. If this comes out hot, it’s going to be more difficult for the Fed, regardless whether led ed by Jerome Powell or an uber-dove, to significantly cut interest rates.

And it also exposes the possibility of divergence between Fed policy and Treasury rates, which are actually more important for Trump’s aim of economic growth.

As always, I prescribe to the thought that price leads and narrative follows so the current setup in EUR/USD retains an open door for bulls to make a move around tomorrow’s print, with the caveat that there’s some significant areas of resistance overhead, and if sellers do want to retain control, that’s what they’ll need to defend.

At this point I’m tracking support in the same zone that was in-play last Monday, taken from swing highs in October and November from 1.1656-1.1669. The low last week was carved on the December swing low of 1.1616, which is secondary support going into tomorrow’s CPI release.

For resistance, we have the Fibonacci level at 1.1686 which has so far held bulls at bay, but 1.1717 lurks above that and then 1.1748 above that.

EUR/USD Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro