Fed Independence Risks Boosts EURUSD Beyond 1.17

Key Events

Trump raises Fed independence risks by pressuring Powell for replacement and rate cuts
EUR/USD rises to its highest level since September 2021 at 1.1745
U.S. Dollar Index (DXY) hovers near a trendline extending from 2008 lows

The U.S. dollar fell sharply on speculation that interest rate cuts may arrive sooner—and go deeper—than markets had previously priced in, as President Donald Trump ramps up pressure on Federal Reserve Chair Jerome Powell.

With the U.S. Dollar Index (DXY) trading at its lowest levels in three years and testing a trendline that extends back to the 2008 lows, the EUR/USD has surged above 1.17, and GBP/USD has broken above 1.37, both aiming toward their 2021 highs.

While some are beginning to talk about the structural weakness of the dollar and the possibility of global central banks accelerating diversification away from it, such a scenario is far from confirmed. However, a break below the lower boundary of the long-standing 2008 trend channel could signal deeper trouble, as outlined in the technical chart below.

DXY Outlook: Monthly Time Fame - Log Scale

Source: Tradingview

The U.S. Dollar Index is currently hovering just above a 17-year trendline. Monthly RSI is pointing to oversold levels last seen in 2021, indicating that downside risks are being closely monitored. Support levels at 96 and 94 may offer potential rebound zones. A clear close below those levels could open the door for further losses, threatening the dollar’s dominance over the euro and the pound.

On the upside, a recovery above the 100 and 102 levels would be required to reintroduce a bullish rebound scenario.

EURUSD Outlook: Monthly Outlook – Log Scale

Source: Tradingview

As EUR/USD breaks further above the upper boundary of a 17-year descending channel, U.S. dollar dominance over the pair appears to be fading, leaving room for long-term upside potential. The pair has now reached levels last seen in September 2021 near 1.1750. A decisive close above this level could extend gains toward the 1.20 mark, aligned with the 2021 peak.

On the downside, a close back below the 1.1570 support may trigger a pullback toward 1.14 and 1.13 before a potential bullish continuation. If that fails, the upper boundary of the former channel could be retested at 1.11 and 1.10.

Written by Razan Hilal, CMT

Follow on X: @Rh_waves

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