empty
16.05.2025 03:54 AM
EUR/USD Overview – May 16: The Dollar Remains the World's "Number One Currency"

This image is no longer relevant

The EUR/USD currency pair moved in both directions on Thursday but ultimately remained below the moving average line. Its position beneath the moving average allows us to expect further strengthening of the U.S. dollar. As noted in previous articles, the fundamental background supports dollar appreciation, but there's one crucial nuance. The fundamental backdrop tied to global trade tensions supports the dollar. All other fundamental factors have been backing it for months already.

It's important to note that the most important monetary policy factor between the European Central Bank and the Federal Reserve still favors the dollar. The ECB has cut its key interest rate seven times in a row and is prepared to continue easing even below the "neutral" level. On the other hand, the Fed has not implemented a single rate cut in 2025 and has only cut three times in 2024, despite market expectations of 6–7 cuts last year and four this year. Once again, market expectations are significantly diverging from reality—a strong supportive factor for the dollar, which the market is currently ignoring.

Let's return to the current narrative that the market is focused on. The 90-day reduction in tariffs for 74 countries, the trade deal with the UK, and the tariff cut for China (and reciprocally) down to a modest 30–10% all point to de-escalation in the trade war. Sure, the end of the conflict is still a long way off—but did anyone expect it to be resolved in a single day? Every significant change begins with small steps. If the dollar kept falling on every new tariff headline for two months, why shouldn't it rise now on every report of eased tensions?

Thus, we fully support the current strengthening of the U.S. dollar. It's also worth noting that the U.S. dollar remains firmly in the lead in the long run. It has been rising for 16 years. This trend may be over, but if the economy grows under Donald Trump as he forecasts, that will be another compelling reason for significant dollar strength. Wouldn't you agree? Therefore, despite the dollar's decline over the last three months and even though a weaker dollar benefits Trump, we don't believe the American currency will keep falling for years to come.

Of course, with Trump, anything is possible. No one knows what shocks await the world in the next four years or how global markets will be forced to respond. However, we believe the dollar has decent prospects for recovery. And if the market remembers other fundamental and macroeconomic factors, the dollar could return to the 1.03–1.04 area.

This image is no longer relevant

The average volatility of the EUR/USD pair over the past five trading days as of May 16 is 107 pips, which is considered high. We expect movement between the levels of 1.1072 and 1.1286 on Friday. The long-term regression channel remains upward-sloping, pointing to a short-term uptrend. The CCI indicator recently dipped into oversold territory, which in an uptrend usually signals a resumption of growth, although the trade war again introduced adjustments. A bullish divergence formed a bit later, triggering a new upward move.

Nearest Support Levels:

S1 – 1.1108

S2 – 1.0986

S3 – 1.0864

Nearest Resistance Levels:

R1 – 1.1230

R2 – 1.1353

R3 – 1.1475

Trading Recommendations:

The EUR/USD pair continues a downward correction within an upward trend. Over the past few months, we've repeatedly stated that we expect only declines from the euro in the medium term, and nothing has changed in that view. The dollar still has no fundamental reason to weaken, except Donald Trump. However, Trump is now focused on trade peace. As a result, the trade war factor is currently supporting the U.S. dollar, which could return to its initial positions around 1.03. Long positions are not considered relevant under current circumstances. Short positions targeting 1.1108 and 1.1072 remain appropriate if the price is below the moving average.

Explanation of Illustrations:

Linear Regression Channels help determine the current trend. If both channels are aligned, it indicates a strong trend.

Moving Average Line (settings: 20,0, smoothed) defines the short-term trend and guides the trading direction.

Murray Levels act as target levels for movements and corrections.

Volatility Levels (red lines) represent the likely price range for the pair over the next 24 hours based on current volatility readings.

CCI Indicator: If it enters the oversold region (below -250) or overbought region (above +250), it signals an impending trend reversal in the opposite direction.

Paolo Greco,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

USD/JPY. Analysis and Forecast

The USD/JPY pair is holding above the key 144.00 level amid continued weakness in the U.S. dollar. Strong household spending data released today in Japan has strengthened expectations

Irina Yanina 18:12 2025-07-04 UTC+2

NZD/USD. Analysis and Forecast

The NZD/USD currency pair is recovering after bouncing from the 0.6030 level, which marks a weekly low, and is attempting to gain further positive momentum. This suggests a break

Irina Yanina 18:08 2025-07-04 UTC+2

USD/CAD. Analysis and Forecast

On Friday, the USD/CAD pair remains near a three-week low, trading below the key 1.3600 level. The U.S. dollar is struggling to extend its gains following yesterday's stronger-than-expected Nonfarm Payrolls

Irina Yanina 17:59 2025-07-04 UTC+2

The Market Celebrates a Victory

Financial markets responded positively to the release of U.S. employment statistics for June. Payrolls rose by 143,000, exceeding Bloomberg analysts' forecasts. April and May figures were revised upward

Marek Petkovich 10:15 2025-07-04 UTC+2

Next Week May Begin on a Positive Note for the Markets (Possible Resumption of Growth in #SPX and #NDX)

The U.S. labor market data, published by the Department of Labor, instilled cautious optimism among investors, extending the rally in U.S. equity markets, supporting the dollar, and weakening gold prices

Pati Gani 10:09 2025-07-04 UTC+2

The Market is Preparing for Another Shock

Just yesterday, U.S. President Donald Trump announced that his administration would begin sending letters to trade partners on Friday, outlining unilateral tariff rates that, according to him, countries will

Jakub Novak 09:55 2025-07-04 UTC+2

Strong U.S. Employment Report Exceeds All Expectations

The U.S. dollar surged against a range of risk assets as the key figures in June's employment report convinced the Federal Reserve that there is no need to lower interest

Jakub Novak 09:49 2025-07-04 UTC+2

What to Pay Attention to on July 4? A Breakdown of Fundamental Events for Beginners

No macroeconomic reports are scheduled for Friday. As previously mentioned, today is a public holiday in the United States, known as Independence Day. All banks and stock exchanges will

Paolo Greco 07:59 2025-07-04 UTC+2

GBP/USD Overview – July 4: Reeves Cried — Did the Pound Collapse?

The GBP/USD currency pair also traded fairly calmly throughout Thursday until the start of the U.S. trading session. Recall that a day earlier, the British currency had plummeted by nearly

Paolo Greco 03:56 2025-07-04 UTC+2

EUR/USD Overview – July 4: Trump's Third Trade Deal Didn't Help the Dollar Either

The EUR/USD currency pair traded very calmly throughout Thursday, until unemployment and labor market reports were released in the United States. However, we will discuss those reports in other articles

Paolo Greco 03:56 2025-07-04 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.