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EUR/USD Rebounds From Monthly Lows as Political Pressure on Fed Undermines Dollar
Summary:
EUR/USD rebounded toward 1.1690 as Eurozone sentiment improved and renewed political pressure on the Fed weakened the dollar, with markets now focused on US CPI and Fed commentary for direction.
Trading
1.16899
ENTRY
1.17400
TGT
1.16500
SL
1.16771 +0.00462 +0.40%
0
Point
Flat
1.16500
SL
CLOSING
1.16899
ENTRY
1.17400
TGT
The euro extended its recovery against the US dollar on Monday, with EUR/USD trading near the 1.1690 mark at the time of writing, around 0.4% higher on the day. The pair rebounded sharply from one-month lows around the 1.1620 region earlier in the session, as a combination of improving Eurozone sentiment data and renewed political pressure on the US Federal Reserve weighed heavily on the greenback.
Support for the single currency was reinforced by an upbeat reading from the Eurozone Sentix Consumer Sentiment Index, which surprised modestly to the upside and helped ease concerns that fragile consumer confidence could further undermine the region’s already sluggish growth outlook. While the broader Eurozone macro picture remains mixed, the data provided a timely catalyst for euro buyers, particularly against a dollar struggling to find a fundamental anchor.
The US dollar, meanwhile, came under renewed selling pressure following fresh political developments in Washington that have unsettled investors and revived concerns over the Federal Reserve’s independence. According to a report published by The New York Times on Sunday, Federal Reserve Chairman Jerome Powell is facing a criminal investigation linked to testimony he delivered before the Senate Banking Committee regarding the renovation of a Federal Reserve building.
Powell responded swiftly, releasing a video statement in which he described the investigation as “unprecedented” and framed it as part of a broader campaign of political intimidation aimed at forcing the central bank to cut interest rates. Markets appeared to interpret the episode as another escalation in the long-running conflict between the US administration and the Fed, raising fears that political interference could undermine policy credibility at a critical juncture for the US economy.
From a market perspective, renewed attacks on the Fed have tended to weaken the dollar, as they inject uncertainty into the outlook for US monetary policy and risk destabilising long-term inflation expectations. Traders appear increasingly wary that sustained political pressure could influence the Fed’s decision-making process, particularly as financial conditions remain tight and growth signals show early signs of cooling.
Geopolitical risks also linger in the background, adding another layer of complexity to market sentiment. Violence escalated sharply in Iran over the weekend, with reports suggesting that hundreds of protesters were killed by the regime amid widespread unrest. The situation has heightened concerns about regional instability, while the looming threat of potential US intervention has added to global risk unease. Although such developments have traditionally supported the US dollar via safe-haven flows, the currency has so far failed to benefit, suggesting that domestic political concerns are currently exerting a stronger influence.
The economic calendar is relatively light at the start of the week, but market participants will be paying close attention to remarks from Atlanta Fed President Raphael Bostic later on Monday. Any commentary on inflation dynamics or the timing of potential rate cuts could shape near-term dollar sentiment. Looking further ahead, attention will turn sharply to the release of US Consumer Price Index (CPI) data on Tuesday, a key input into the Fed’s policy calculus, followed by a series of speeches from Fed officials throughout the week.
In my view, the dollar’s near-term vulnerability reflects a growing disconnect between resilient headline US data and rising political and institutional risks. Unless US inflation surprises meaningfully to the upside, the greenback may struggle to regain momentum, leaving room for the euro to extend its corrective rebound despite its own structural challenges.
Technical Analysis
From a technical standpoint, EUR/USD has staged a convincing bounce from one-month lows near 1.1620, suggesting that buyers are defending the lower boundary of the recent trading range. However, the pair continues to trade within a broader descending channel that has been in place since the late-December highs, indicating that the medium-term bias remains cautiously bearish unless key resistance levels are cleared.
Momentum indicators on the four-hour chart have turned more constructive. The Moving Average Convergence Divergence (MACD) has crossed above its signal line, pointing to a gradual fading of bearish pressure, while the Relative Strength Index (RSI) has pushed decisively above the 50 threshold, signalling improving upside momentum.
On the topside, the immediate area of interest lies near 1.1700, where the upper boundary of the descending channel converges with the January 7 high. A sustained break above this zone would likely open the door for a move toward the January 6 peak at 1.1740. Failure to clear resistance, however, could see the pair drift back toward support levels, with 1.1620 remaining a critical line in the sand for euro bulls.
TRADE RECOMMENDATION
BUY EURUSD
ENTRY PRICE: 1.1690
STOP LOSS: 1.1650
TAKE PROFIT: 1.1740
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