EUR/USD Weekly Outlook for February 17, 2025 – Inflation, Central Bank Policies, and Key Resistance Levels

• Inflation in the United States continues to rise, now at 3%, prompting the Federal Reserve to essentially conclude its mini cycle of rate cuts. Meanwhile, Trump is bringing Ukraine and Russia closer to a peace negotiation.
• Europe stands on the brink of the German elections, with the market starting to bet on a potential peace plan between Russia and Ukraine. Lagarde, however, dampens expectations of aggressive rate cuts, warning about the risk of tariffs and rising inflation.
• EUR/USD has managed to pull away from the danger zone of 1.02. The favorable seasonal period for the dollar is nearing its end. Watch for resistance at 1.05/1.06.

Central Bank Policies, Inflation, and Global Political Risks

In testimony before Congress, Powell reiterated that there is no rush to cut rates, effectively putting an end to any immediate rate-cutting policy, unless there is an unexpected collapse in the labor market, which remains strong. Powell also highlighted the need for a review of communication strategies with the markets, although he excluded the possibility of raising the inflation target from the current 2%.

U.S. inflation surprised on the upside, returning to 3%, with core inflation remaining above this psychological threshold for the 45th consecutive month.

Lagarde also weighed in this week, confirming that European inflation is slowing, manufacturing growth is stagnating, but most notably, the path for rates remains uncertain, as an especially acute trade war could lead to a resurgence in inflation.

Meanwhile, Germany approaches its elections scheduled for February 23, a crucial test for the entire EU. The outcome could force the EU to contend with a leading country where ultranationalist trends might take hold.

Trump is laying the groundwork for a peace plan between Ukraine and Russia, which would provide relief to the entire continent, already grappling with a dangerous border conflict for three years. The price of natural gas has been a primary cause of economic stagnation in the most industrially-driven countries, such as Germany and Italy. However, Trump pairs the carrot with the stick, threatening heavy tariffs on European industry, which he believes is complicit in an adversarial stance toward American corporations.

Technical Analysis: EUR/USD Resistance at Key Levels as Dollar Weakens

February is traditionally the last month of a series of favorable periods for the greenback, which historically gives way to the euro’s recovery from spring onward. The market seems to be preparing for this scenario, with yet another test of the 1.02 area at the beginning of the month followed by a weak rebound.

At this point, the resistance zone between 1.05 and 1.06 becomes crucial. We are approaching the close of the week, and here lies the January high and the 100-day moving average. A breakout above this level would formalize a double bottom pattern, with targets placed between 1.09 and 1.10.

The importance of certain levels for EUR/USD, particularly a monthly close above 1.05, is clearly visible on the monthly chart. Aside from the temporary collapse in 2022 caused by the outbreak of the Ukraine war and the subsequent spike in energy prices, EUR/USD has consistently found support around this price zone over the past decade.

It is crucial for the euro to rise above 1.05 in the coming months, avoiding the risk of dropping below parity, a technical scenario that cannot be ruled out until this piece of the puzzle falls back into place. The ongoing movement is therefore very interesting, as will be the close of February.