The EUR/USD outlook suggests a bleak future for the euro amid a rate cut and dovish European Central Bank’s policy path. On the other hand, the dollar rebounded after Trump emphasized his plans to impose tariffs on Canada and Mexico.

On Thursday, the European Central Bank lowered borrowing costs by 25-bps as expected. Moreover, policymakers maintained a dovish tone, opening the door for more rate cuts. The central bank has supported lower rates due to a slowdown in the Eurozone economy. At the same time, inflation has dropped significantly, allowing policymakers to focus on growth.

Meanwhile, the greenback rebounded on Thursday after Trump repeated his plans to impose a 25% duty on goods imported from Canada and Mexico. If all goes as planned, this tariff will be implemented on Saturday. Such an outcome would increase demand for locally produced goods in the US as they will be cheaper.

This, in turn, will boost the economy and increase inflation. Moreover, the Fed will be forced to keep interest rates at restrictive levels to contain inflation. However, the tariffs might also negatively impact the US economy if they lead to trade wars. 

Elsewhere, data on Thursday revealed that the US economy expanded by 2.3%, missing forecasts of a 2.7% expansion. However, the report also showed that inflation rose by 2.5%.

EUR/USD key events today

• German Prelim CPI m/m
• US core PCE price index m/m

EUR/USD technical outlook: Bears pause below the 1.0400

(Click on image to enlarge)

EUR/USD 4-hour chart

On the technical side, the EUR/USD price has broken below the 1.0400 support level after retesting the 30-SMA as resistance. The bearish bias is strong because the price has moved far below the 30-SMA. At the same time, the RSI trades below 50, suggesting solid bearish momentum. 

This move has followed a channel breakout. However, bears and bulls are still struggling for control between the 30-SMA and the 1.0400 support level. Moreover, price action after the break below 1.0400 shows indecision. 

If bears are ready to take charge, the price will drop to the 1.0301 support. On the other hand, if they are not strong enough, bulls might emerge to retest the 30-SMA. A break above the SMA would allow EUR/USD to challenge the 1.0500 key resistance level.

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