The EUR/USD exchange rate traded in a narrow consolidation channel on Tuesday, oscillating around the 1.1730 level, slightly down from its year-to-date high of 1.1825. This recent pause comes after a confluence of fundamental developments, including soft European retail sales data and renewed optimism about a potential trade deal between the European Union (EU) and the United States. Gradiopexo’s team of experts explores this subject in depth in their latest piece.
These macroeconomic forces, combined with an increasingly complex technical structure, suggest that the pair may temporarily retrace toward the 1.1565 support level before resuming its broader bullish trend.
European Retail Sales and Growth Concerns
One of the primary drivers of the recent EUR/USD retracement is the sluggish economic data coming out of the euro area. Eurostat reported that retail sales in the EU contracted by 0.1% in May, underscoring continued weakness in consumer demand. This decline follows months of tepid economic performance and reinforces concerns that the eurozone economy is heading into a soft patch during the second quarter.
The data adds to the growing pressure on the European Central Bank (ECB), which has already enacted nine rate cuts in this cycle, making it one of the most aggressive central banks in the developed world. Despite this dovish stance, most analysts believe that the ECB will pause further easing in the upcoming monetary policy meeting, preferring to observe how past measures ripple through the economy.
US-EU Trade Deal Optimism
Counterbalancing the negative retail sales data was a positive headline regarding transatlantic trade relations. Olof Gill, spokesperson for the EU, stated that negotiations with the United States Trade Representative were nearing the “beginning of the endgame,” with a framework for a comprehensive trade agreement potentially imminent.
The EU is reportedly open to a 10% universal tariff on all US-bound goods. However, Brussels is pressing for sectoral carve-outs for commercial aircraft, pharmaceuticals, and alcohol, as well as quota-based exemptions for automobiles, steel, and aluminium.
A finalized deal would be bullish for the euro since the EU exports a substantial volume of goods to the US and seeks to avoid retaliatory tariffs, particularly the 50% levies previously threatened by the US President.
Lack of Immediate Catalysts
For now, the economic calendar is quiet. No major data releases are expected from either side of the Atlantic for the remainder of the day.
Instead, traders are turning their attention toward the upcoming Federal Open Market Committee (FOMC) meeting minutes, which will provide insights into the Federal Reserve’s internal policy debates and their forward guidance trajectory.
Markets are particularly focused on how divided Fed officials are regarding interest rate cuts for the remainder of 2025. A hawkish tone in the minutes could strengthen the US dollar, placing downward pressure on the EUR/USD pair, while a dovish surprise may reignite bullish interest in the euro.
EUR/USD Technical Analysis: Eyes on 1.1565 Support
From a technical analysis perspective, the EUR/USD pair has entered a short-term pullback phase after peaking at 1.1826. The daily chart indicates that the pair is still holding above the key support level of 1.1565, which served as a major resistance zone back on April 21 before being breached during the latest rally.
Despite the recent decline, the pair is still trading above both the 50-day and 100-day Exponential Moving Averages (EMA), confirming that the medium-term bullish trend remains intact. These dynamic support lines act as crucial markers of trend direction and potential bounce zones.
However, momentum indicators are beginning to signal weakness. The MACD (Moving Average Convergence Divergence) lines are close to forming a bearish crossover, which could point to increased selling pressure in the near term. Similarly, the Relative Strength Index (RSI) has turned lower, moving away from overbought territory and indicating potential room for further downside.
Given these signals, the most probable scenario is a break-and-retest pattern, where EUR/USD declines to test the 1.1565 support, consolidates briefly, and then rebounds higher. This pattern is a classic bullish continuation structure, often used by traders to identify potential long entry opportunities after a period of retracement.
Conclusion
The EUR/USD signal remains moderately bullish over the medium-term, but a short-term pullback toward 1.1565 looks likely given weakening momentum and macroeconomic headwinds.
The strength of the support level at 1.1565 will determine whether this is a healthy retracement or the start of a deeper correction. With FOMC minutes on the horizon and a potential EU-US trade deal in play, traders should brace for volatility and prepare for a potential buy-the-dip opportunity if technical support holds.
