EUR/USD Stabilizes Technically: ECB Policy Expectation Adjustments Drive Exchange Rate Reversal

In March 2025, the EUR/USD exchange rate showed signs of stabilization and rebound, with the market's repricing of the European Central Bank's monetary policy path being a key driver. According to an in-depth analysis by ING's financial research team, as the Eurozone's inflation resilience strengthens and major economies' economic data improves, traders are gradually correcting their previously overly dovish interest rate expectations, providing structural support for the Euro.

From a technical perspective, EUR/USD is currently firmly holding the key support level of 1.0850. Despite recent increased volatility, trading volume in this area has significantly increased, indicating continuous intervention by institutional funds. Technical indicators show that the price is entering a narrow range consolidation phase, with the daily fluctuation range significantly narrowing compared to the previous period, which is often a typical brewing pattern before a trend breakout. It is worth noting that the 50-day moving average and the 200-day moving average are converging. Historically, such moving average resonance often foreshadows the start of a medium-term directional trend. The core support comes from a substantial shift in ECB policy expectations. Recent Eurozone service sector inflation data has consistently exceeded expectations, coupled with a rebound in economic sentiment in Germany and France. Market expectations for the number of rate cuts in 2025 have been lowered by approximately 15 basis points compared to January. The European Central Bank's updated economic outlook also raised its 2025 growth forecast, further strengthening the "hawkish" shift in its policy stance, providing solid fundamental support for the Euro. At the same time, the Federal Reserve's policy path is also converging. The latest US non-farm payroll data was stronger than market expectations, delaying market expectations for the timing of rate cuts, resulting in a significant convergence of the divergence trend between US and European monetary policies. In the past, the market generally believed that the Federal Reserve would cut interest rates earlier and more aggressively than the ECB, but the current pattern has shifted to a convergence of policy rhythms between the two. This narrowing of divergence directly weakens the relative advantage of the US dollar, allowing the Euro to gain valuation repair space. According to the European Commission's latest forecast, the Eurozone's GDP growth rate for 2025 has been revised upward to 0.8%, while the US growth rate has been slightly revised downward to 1.9%. Although the United States still maintains a relative growth advantage, the gap is narrowing. In a context where the real interest rate differential is stabilizing and growth expectations are being revised in sync, the Euro's medium-term trend is more dependent on the sustainability of internal economic momentum, rather than simply being driven by interest rate differentials. Traders should currently focus on the effectiveness of the 1.0850 support and the ability to break through the 1.1000 psychological level above. If the price can stably stand firm in this range and is accompanied by increased trading volume, it cannot be ruled out that a new round of moderate upward channel may be opened.