EUR/USD Eyes Breakout as Fed & ECB Diverge on Rates, 1.1424 in Sight?

EUR/USD up to $1.1317 in early Tuesday trading as US Dollar pulls back and Germany’s political stability improves. With Friedrich Merz set to be sworn in as new Chancellor, investors expect smoother execution of fiscal spending and defence investments already approved by Bundestag in March. But Euro’s upside is limited as traders prepare for ECB meeting. ECB is expected to cut Deposit Facility Rate by 25bps to 2%, its 8th cut in a year. Central bankers are still concerned about weak inflation dynamics and external risks – especially from US trade policies. Key points: Dollar Steadies Ahead of Fed Decision Dollar Index (DXY) is hovering just below 100 as markets wait for Fed decision on Wednesday. Fed is already priced to hold rates steady at 4.25-4.50% in May. The real focus is on forward guidance and how Fed interprets Trump’s recent policy moves. Fed has a tough balancing act: hold rates steady while waiting for clarity on fiscal policy or risk acting too soon. Trump’s tariff proposals – especially 100% tariff on foreign made films and new duties on pharma – have added more uncertainty to already mixed US economic outlook. What to watch: Technical Outlook: EUR/USD Breakout Looms EUR/USD is coiling in a symmetrical triangle , currently between $1.1378 and $1.1284. 50-period EMA is flat at $1.1320, while MACD is subdued. This narrowing range often precedes a breakout, so next few sessions are crucial. Trade ideas: