EUR/USD lost the grip and receded to multi-week lows near 1.1220.

The US Dollar picked up intense upside momentum on trade optimism.

Markets attention now shift to a slew of Fed speakers on Friday.

The Euro (EUR) added its recent decline on Thursday, with EUR/USD slipping back toward the 1.1220 zone as the US Dollar (USD) regained solid momentum following a hawkish tilt from the Federal Reserve (Fed) and rising expectations around US-China trade progress, particularly following President Trump’s announcement of a US-UK trade agreement earlier in the day.

Indeed, the US Dollar Index (DXY) strengthened across the board and largely surpassed the psychological 100.00 barrier as market participants continued to adjust to the latest Fed event, while increasing optimism on the trade front also contributed to the firm rebound in the Greenback.

Cautious optimism on trade

Market sentiment improved modestly on Thursday following confirmation that US and Chinese officials will meet in Switzerland over the weekend for high-level trade discussions.

The tone was further buoyed by the announcement of a US-UK trade agreement and upbeat rhetoric from President Donald Trump, who signalled openness to additional deals. The developments helped restore some investor confidence after months of tariff-related uncertainty.

Central bank divergence widens

Monetary policy paths between the Fed and the European Central Bank (ECB) are diverging. While the Fed maintained its benchmark rate this week, the ECB moved in the opposite direction with a 25 basis point cut last month, bringing its policy rate to 2.25%. A follow-up cut as early as June is now being priced in, raising doubts about the euro’s staying power if US policy remains comparatively tighter.

Speculators still backing the Euro

Despite the ECB’s dovish turn, positioning remains euro-positive. CFTC data as of April 29 showed net long positions on the euro rising to 75.8K contracts—a multi-month high—while open interest surged past 730K, levels last seen in September 2024. However, commercial hedgers remained net short, underlining corporate caution.

Technical outlook: Strong resistance in play

EUR/USD remains capped below its 2025 high at 1.1572 (April 21), with the psychological 1.1600 level and the October 2021 peak at 1.1692 serving as the next resistance targets.

On the downside, transitory support sits at the 55-day SMA at 1.0990, seconded by the 200-day SMA at 1.0789 and the weekly trough at 1.0732 (March 27).

Momentum indicators seem to suggest some potential correction. The Relative Strength Index (RSI) eases to the 50 threshold, while the Average Directional Index (ADX) at 43 signals strong trend continuation.

EUR/USD daily chart

Outlook: Crosscurrents ahead

The euro remains caught between conflicting forces—dovish ECB policy on one side, supportive political sentiment and speculative positioning on the other. With central bank divergence sharpening and global trade rhetoric re-emerging, EUR/USD is likely to stay headline-sensitive and volatile in the near term.

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• USD/CAD nears 1.3900 as the Canadian Dollar softens ahead of key risk events.
• US–Canada tariff tensions linger, with markets watching for trade-related signals.
• The Loonie pair edges higher, awaiting the BoC’s risk review and Trump’s US-UK trade deal announcement.

The Canadian Dollar (CAD) is weakening against the US Dollar (USD) on Thursday as investors brace for a pivotal day of policy and trade headlines that could redefine North American market sentiment. 

At the time of writing, USD/CAD is trading at 1.3880, up 0.34% on the day, with the pair strengthening as markets await the Bank of Canada (BoC) Financial System Review (FSR) and a speech by US President Donald Trump, who is expected to unveil a new UK–US trade agreement, both scheduled at 14:00 GMT.

Bank of Canada risk review in spotlight as markets assess financial vulnerabilities

The BoC’s Financial System Review, published twice a year, offers a detailed assessment of systemic vulnerabilities within Canada’s financial infrastructure. 

While it is not a monetary policy document, the FSR holds relevance for market participants by shedding light on financial stability risks, including household debt, credit conditions, and housing market exposure, that could influence future rate guidance or regulatory responses. With Canada’s economy facing slowing growth and moderating inflation, any indication of tightening financial conditions or external risk exposure could weigh on the Canadian Dollar. 

BoC Governor Tiff Macklem holds a press conference to discuss the contents of the FSR findings following the release, with markets closely watching his tone for any policy-relevant signals.

US–UK trade deal and Carney meeting shift spotlight to North American trade policy

Simultaneously, President Trump is expected to announce the completion of a new US–UK trade agreement, the first after the “Liberation Day.” 

Markets are eyeing the terms of this deal for broader implications, particularly if it sets a precedent for bilateral arrangements that bypass traditional multilateral frameworks. 

The agreement may also open the door for secondary trade alignments that benefit commodity-linked currencies like the Canadian Dollar, especially if it improves transatlantic logistics and demand for North American intermediate goods.

The twin policy developments follow heightened political friction earlier this week after Canadian Prime Minister Mark Carney met with President Trump in the Oval Office on Tuesday. While the meeting was described as “cordial but firm,” Carney dismissed Trump’s remarks that Canada could “become the 51st state,” stating: “Canada is not for sale, it won’t be for sale, ever.” 

Despite the tension, the two leaders discussed the future of the United States-Mexico-Canada Agreement (USMCA) and trade terms affecting the North American supply chain. Trump reiterated that non-compliance with USMCA provisions would “not go unanswered,” suggesting possible reviews of sector-specific tariffs.

USD/CAD recovers from support with range-bound bias ahead of key catalysts

USD/CAD edges higher on Thursday, recovering above the 10-day Simple Moving Average (SMA), currently at 1.3832. At the same time, the broader structure for the pair remains capped below a key psychological resistance zone at 1.3900–1.3944. This resistance band includes a round level and the 61.8% Fibonacci retracement of the September–February rally and has limited upside breakouts throughout May.

USD/CAD daily chart

The pair remains above the November low at 1.3823, which has provided a firm floor over recent days. A daily close below this level would expose deeper support at the 78.6% Fibonacci retracement near 1.3713.

On the upside, sustained strength above 1.3944 could trigger renewed buying pressure toward the 200-day moving average at 1.4017, with a breakout potentially paving the way toward the April high at 1.4415.

The Relative Strength Index (RSI) has edged up to 45.59 in the daily chart, indicating fading bearish momentum but lacking a clear directional bias as it closes in on the mid-line at 50.

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• Gold price extends correction and drops nearly 1% in early European trading on Thursday. 
• The UK and the US are ready to announce a trade deal that would circumvent the US tariff implementation. 
• Gold sees safe haven outflow with the assumption that more deals will follow suit. 

Gold (XAU/USD) extends the prior’s day correction and drops nearly 1% to $3,333 at the time of writing on Thursday as risk sentiment improves, with United States (US) President Donald Trump expected to announce a trade deal agreement with the United Kingdom (UK) at a news conference at 14:00 GMT in Washington, according to people familiar with the matter. Meanwhile, the UK administration has confirmed to Bloomberg and the Financial Times that a deal will be announced. Details on that trade deal remain unconfirmed. 

Additional driver overnight was the Federal Reserve (Fed) interest rate decision and Fed Chairman Jerome Powell’s remarks. The main takeaway from Powell’s words was that the US economy is showing signs of resilience for now. However, Powell expects the actual impact of tariffs and heightened uncertainty to impact economic numbers later this year. The central bank kept interest rates unchanged in the range of 4.25%-4.50%, confirming the markets’ assumption, as seen in the Fedwatch Tool, that a rate cut is not foreseen until summer. 

Daily digest market movers: Funds not seeing Gold rally done for

• In the Asian trading session, before the trade deal announcement was issued, the Gold price was climbing, after tumbling on Wednesday when the Federal Reserve held interest rates, and Chair Jerome Powell said the central bank isn’t in a rush to cut despite trade-war uncertainty, Bloomberg reports. 
• That the Gold Rush is not over, even with a possible initial trade deal, can be seen with statements from several hedge funds. This Thursday, Waratah Capital Advisors Ltd. reported it is betting on Gold to lift its returns this year as investors pile into the asset to shelter their wealth during the global trade war, Bloomberg reports. 
• “Big News Conference tomorrow morning at 10:00 EDT (14:00 GMT), The Oval Office, concerning a MAJOR TRADE DEAL WITH REPRESENTATIVES OF A BIG, AND HIGHLY RESPECTED, COUNTRY. THE FIRST OF MANY!!!” President Trump wrote on his social media platform “Truth Social”, The New York Times reports. 

Gold Price Technical Analysis: Talks with instantly big questions

Do not pop the champagne just yet with this initial trade deal between the UK and the US. Euphoria is taking place in markets on the back of these headlines, though the first element to trim the ambiance is that the UK is indeed a big economy, though with the near least exposure to the US in terms of trade. That a deal is being struck this quickly means it will probably only be on one segment, or a deal in principle. 

Gold price initially traded higher this Thursday, facing rejection at the R1 resistance near $3,413. Should the signing of the deal be delayed, or if the actual deal is really just some window dressing, expect a knee-jerk reaction with Gold quickly sprinting back to that level. Once there, it is not far from the R2 resistance at $3,462.

On the downside, the S1 support at $3,338 is being tested at the time of writing. Further down, the S2 support comes in at $3,311, though technically not holding any other relevance besides being a daily pivotal level. The watchdog level, which is near $3,245, is a much stronger floor from a technical standpoint. 

XAU/USD: Daily Chart

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• WTI price gains ground due to a decline in US crude inventories.
• Oil prices may lose ground due to lingering uncertainty surrounding US-China trade talks.
• Fed Chair Powell signaled a more cautious stance on interest rate decisions, citing continued policy uncertainty.

West Texas Intermediate (WTI) crude Oil price recovers some ground during Thursday’s Asian session, trading around $58.10 per barrel after recent losses. The rebound is supported by a decline in US crude inventories. According to the latest EIA Petroleum Status Report, US crude stockpiles fell by 2.032 million barrels in the week ending May 2.

However, Oil prices remain under pressure due to lingering uncertainty surrounding US-China trade talks. As the world’s two largest oil consumers, tensions between them continue to weigh on market sentiment. US Treasury Secretary Scott Bessent is scheduled to meet China’s top economic official on May 10 in Switzerland in an attempt to revive stalled negotiations.

US President Donald Trump, meanwhile, claimed China initiated the talks and reiterated his unwillingness to reduce tariffs to bring Beijing to the table. Bessent tempered expectations, describing the meeting as an initial step rather than an advanced phase of negotiation.

Despite mutual willingness to engage, acknowledged by China’s Ministry of Commerce, investors remain cautious. The trade conflict threatens to dampen global Oil demand, with Brent crude edging higher on optimism about possible progress, extending Wednesday’s relief rally. Still, ING analysts Ewa Manthey and Warren Patterson emphasized that meaningful progress on tariff reductions is essential to lifting the Oil demand outlook.

Further dampening sentiment, Federal Reserve Chair Jerome Powell warned that prolonged tariff policies could hinder the Fed’s inflation and employment goals. He signaled a more cautious stance on interest rate decisions, citing continued policy uncertainty. While trade tensions under the Trump administration have previously undermined business and consumer confidence, the Fed sees no urgent need for rate changes in the absence of more pronounced economic weakness.

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Federal Reserve Chairman Jerome Powell explained the decision to leave the policy rate unchanged at the 4.25%–4.50% range following the May meeting and responded to questions during the post-meeting press conference.

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Key Quotes

• Economy in a solid position.
• Inflation has come down a great deal.
• Running somewhat above 2% goal.
• Current stance of policy leaves us well positioned to respond in timely way.
• Import swing complicated GDP data.
• Remains to be seen how uncertainty affects future spending and investment.
• Labour market broadly in balance.
• Labour market consistent with max employment.
• Near-term inflation expectations have moved up.
• Survey respondents point to tariffs as driving inflation expectations.
• Longer-term inflation expectations consistent with goal.
• Administration doing substantial policy changed.
• Tariffs so far significantly bigger than expected.
• If large increases in tariffs as announced are sustained, will see higher inflation, lower employment.
• Avoiding persistent inflation will depend on size, timing of tariffs, and inflation expectations.
• We aim to inflation expectations anchored.
• Without price stability cannot achieve strong labor conditions.
• If dual mandate goals in tension, consider distance from goal, time to close gaps.
• Time to wait before adjusting policy.
• Can’t say which way risks will shake out.
• A great deal of uncertainty about tariffs.
• Too early to know.
• If look through Q1 distortions, economy solid.
• Economy resilient, in good shape.
• Policy is moderately restrictive.
• In a good place to wait and see.
• No hurry, can be patient.
• Can let things evolve and become clearer.
• Underlying inflation picture is good.
• Inflation now running a bit above 2%, with decent readings in housing, non-housing services.
• We don’t have to be in a hurry.
• Don’t have to be in a hurry.
• Costs of waiting are fairly low.
• Will know more with each week and month where tariffs will land.
• Will know the effects when we start to see them.
• Can’t say how long it will take.
• A clear decision to wait, see and watch.
• We are comfortable with policy stance.
• Right place to wait and see.
• Appropriate to be patient.
• When things develop, we can move quickly if appropriate.
• Now appropriate thing to do is wait; there’s so much uncertainty.
• Everyone is just waiting to see how developments play out.
• If we see higher inflation, higher unemployment, won’t see further progress toward our goals.
• We would see a delay on getting to goals for the next year.

This section below was published at 18:00 GMT to cover the Federal Reserve’s policy decisions and the immediate market reaction.

The United States (US) Federal Reserve (Fed) announced on Wednesday that it left the policy rate, federal funds rate, unchanged at the range of 4.25%-4.5% following the May meeting. This decision came in line with the market expectation.

Follow our live coverage of the Fed monetary policy announcements and the market reaction.

In the policy statement, the Fed noted that the economic outlook uncertainty has increased further.

Fed policy statement highlights

“Committee judges risks of higher unemployment and higher inflation have risen.”

“Economic activity has continued to expand at a solid pace despite swings in net exports affecting the data.”

“Unemployment rate has stabilized at a low level, labor market conditions remain solid.”

“Committee will continue reducing holdings of treasuries and mortgage-backed securities at current pace.”

“Inflation remains somewhat elevated.”

“Fed vote in favor of policy was unanimous.”

Market reaction to Fed policy announcement

The US Dollar stays resilient against its rivals with the immediate reaction to the Fed’s policy decisions.

This section below was published at 18:00 GMT to cover the Federal Reserve’s policy decisions and the immediate market reaction.

• The Federal Reserve is expected to leave the policy rate unchanged for the third consecutive meeting.
• Fed Chairman Powell will speak on the policy outlook in a press conference.
• The US Dollar could stay resilient against its rivals if the Fed keeps its focus on the inflation outlook.

The United States (US) Federal Reserve (Fed) will announce monetary policy decisions following the May policy meeting on Wednesday. Market participants widely anticipate the US central bank will leave policy settings unchanged for the fourth consecutive meeting, after cutting the interest rate by 25 basis points (bps) to the 4.25%-4.5% range in December.

The CME FedWatch Tool shows that investors virtually see no chance of a rate cut in May, while pricing in about a 30% probability of a 25 bps reduction in June. Hence, market participants will scrutinize the changes in the policy statement and comments from Fed Chairman Jerome Powell in the post-meeting press conference for fresh hints on the timing of the next rate cut.

Before the Fed went into the blackout period, several policymakers voiced their concerns over the uncertainty created by the US’ new trade regime weighing on the labor market.

Minneapolis Fed President Neel Kashkari said that some businesses indicate that they are preparing for possible job cuts if uncertainty continues. Similarly, Fed Governor Christopher Waller told Bloomberg that he wouldn’t be surprised to see more layoffs and higher unemployment, adding that rising unemployment could pave the way for rate cuts. As the Bureau of Labor Statistics reported that Nonfarm Payrolls rose by 177,000 in April, surpassing the market expectation of 130,000, and the Unemployment Rate remained unchanged at 4.2%, investors turned reluctant to price in a rate cut in June.

Previewing the Fed’s May meeting, analysts at Danske Bank said, “We expect the Fed to maintain its monetary policy unchanged in the May meeting, in line with consensus and market pricing.”

“While we expect the Fed to resume cutting rates in June, we doubt Powell will opt for clear forward guidance amid the tariff uncertainty. Growth risks remain tilted to the downside, but rising inflation expectations are still a concern,” the analysts added.

When will the Fed announce its interest rate decision and how could it affect EUR/USD?

The US Federal Reserve is scheduled to announce its interest rate decision and publish the monetary policy statement on Wednesday at 18:00 GMT. This will be followed by Fed Chairman Jerome Powell’s press conference starting at 18:30 GMT.

Investors will pay close attention to how the Fed and Chairman Powell assess the latest economic developments. Although the April employment report showed that conditions in the labor market remain relatively healthy, the Bureau of Economic Analysis reported in its flash estimate that the US’ Gross Domestic Product (GDP) contracted at an annual rate of 0.3% in the first quarter.

In case the Fed acknowledges a heightened risk of a recession and its potential negative impact on hiring, investors could see that as a dovish language. In this scenario, the US Dollar (USD) could come under renewed selling pressure. On the other hand, investors could refrain from pricing in a rate cut in June and help the USD outperform its rivals, if the Fed downplays growth concerns and implies that it will remain patient about policy adjustments while waiting to see how tariffs will impact inflation.

Eren Sengezer, European Session Lead Analyst at FXStreet, provides a short-term technical outlook for EUR/USD:

“The near-term technical outlook points to a loss of bullish momentum, with the Relative Strength Index (RSI) indicator on the daily chart retreating toward 50. Additionally, EUR/USD trades near the 20-day Simple Moving Average (SMA) after holding comfortably above this level throughout April.”

“On the downside, the Fibonacci 23.6% retracement level of the uptrend that started in January forms key support at 1.1200. In case EUR/USD makes a daily close below this level and starts using it as resistance, technical sellers could remain interested, opening the door for an extended slide toward 1.1015-1.1000 (Fibonacci 38.2% retracement, round level, 50-day SMA) and 1.0860 (Fibonacci 50% retracement). Looking north, interim resistance could be spotted at 1.1440 (static level) before 1.1520 (end-point of the uptrend) and 1.1600 (round level, static level).”

(This story was corrected on May 7 at 11:13 GMT to say, in the first bullet, that the Fed is expected to hold interest rates steady for a third consecutive meeting, not a fourth.)

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• The US Dollar Index trades broadly flat after dipping to a five-day low on Tuesday around 99.20.
• Geopolitical headlines took over in early trading with China and the US to meet this weekend in Switzerland, and Pakistan-India conflict flaring up.
• The US Dollar Index remains stuck in a wait-and-see range as the Federal Reserve rate decision is just around the corner.

The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, trades broadly flat to marginally higher on Wednesday at around 99.40. That level just a few percentage points away from the fresh five-day low from Tuesday. Traders are meanwhile assessing news about progress between China and the US regarding trade talks and brace for the Federal Reserve (Fed) interest-rate decision later this Wednesday.

Not much is expected from this rate decision as markets almost fully price in that the Fed will keep rates stable despite pressure from US President Donald Trump to cut them. 

On the geopolitical front,  tensions flared up between Pakistan and India. Pakistan said it shot down five Indian airplanes and took soldiers prisoner in retaliation for Indian military strikes early on Wednesday. The prospect of a war between the nuclear-armed neighbors should see some safe haven inflow towards US bonds or Gold, for example, although any added haven demand is, at this stage, being canceled out by the trade talks optimism, Bloomberg reports.

Daily digest market movers: Nothing new to report for Powell

• US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer will travel to Switzerland for trade talks with the Chinese delegation, led by Vice Premier He Lifeng, this weekend. Both parties are seeking to de-escalate a tariff standoff that has threatened to hammer both economies. In this first phase, no trade talks as such will be held, though rather talks to de-escalate the situation, according to Bessent on Fox News.
• At 18:00 GMT, the Fed rate decision will be released with a joint statement. Expectations are for the Fed to maintain its policy rate at the 4.25%-4.50% range.
• At 18:30 GMT, Fed Chairman Powell will take the stage to comment on the recent policy rate decision and take questions from reporters in the room. 
• Equities in Europe have rolled over and are trading near 0.5% losses on the day near their closing bell. US equities are doing a bit better, with the Dow Jones leading the surge, up around 0.5%.
• The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in June’s meeting at 28.3%. Further ahead, the July 30 decision sees odds for rates being lower than current levels at 74.2%.
• The US 10-year yields trade around 4.28%, steady for now after a four-day straight rally higher. 

US Dollar Index Technical Analysis: Big break starts to take shape

The US Dollar Index (DXY) is not really moving or responding to the surprise headline and communication from the China and US administrations on trade talks set to start on Saturday. Markets probably quickly read through the headlines and behind the news that these talks are instead to be seen as two desperate parties joining each other to see how to ease the impacts on the economy. This also shows how the US economic performance is probably starting to struggle because it lacks China’s supplies, which might filter through in another leg lower in the DXY once US economic data confirms it. 

On the upside, the DXY’s first resistance comes in at 100.22, which supported the Index back in September 2024, with a break back above the 100.00 round level as a bullish signal. A firm recovery would be a return to 101.90, which acted as a pivotal level throughout December 2023 and again as a base for the inverted head-and-shoulders (H&S) formation during the summer of 2024.

On the other hand, the 97.73 support could quickly be tested on any substantial bearish headline. Further below, a relatively thin technical support comes in at 96.94 before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.

US Dollar Index: Daily Chart

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While some politically savvy people may have fallen off their chairs yesterday after the first round of voting for the new German Chancellor, the fx market seemed less than impressed, Commerzbank’s Head of FX and Commodity Research Thu Lan Nguyen notes.

FX markets unfazed by initial German chancellor setback

“EUR/USD fell briefly after the news that Friedrich Merz had not received the necessary votes for the ‘chancellor majority’, but recovered quickly. The exchange rate even ended trading at higher levels. However, this is unlikely to be due to the fact that Merz was ultimately elected Chancellor in the second round.”

“Rather, the initial reactions of many observers indicated that Merz was expected to become chancellor after a second round of voting anyway. Potential alternatives such as a new election – as the dissenters from the coalition ranks must have realised – would have been rather self-defeating for them.”

“All’s well that ends well? Hardly. The initial election defeat has shown how fragile the majority under which Merz will govern is. After all, it is completely unclear what prompted the dissenters to make their decision – was it dissatisfaction with Merz himself or with the coalition agreement? Accordingly, scepticism is appropriate with regard to the large fiscal package that the new government is planning and therefore also with regard to the euro.”

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Chinese President Xi Jinping said on Wednesday, “we must firmly maintain post-war international order.”

Additional quotes

• China, Russia have always firmly supported each other.
• Should jointly resist any attempt to disrupt the friendship and mutual trust.
• China, Russia are both major powers with important influence in maintaining global strategic stability.
• No matter how the situation in Taiwan changes, China will eventually ‘reunify’ with Taiwan.

Market reaction

Despite China’s rate cuts and US-Sino trade deal optimism, AUD/USD loses 0.20% on the day to trade at 0.6480, as of writing.

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