Why has the euro been falling continuously? Six consecutive resistances hit a key support

The euro against the US dollar has recently continued to fluctuate downward, closing at 1.078 on March 26, marking the sixth consecutive trading day of pressure. Market analysis suggests that the main reasons behind this decline are twofold: on one hand, the trading enthusiasm generated by earlier German fiscal stimulus is cooling down; on the other hand, the uncertainty surrounding US tariff policies has resurfaced.

Technical Outlook Faces Tests, Key Support in Sight

From a technical perspective, the euro against the dollar has approached the important support level at 1.075. If this level is broken, the market could trigger a larger downward move, with the next targets at 1.07 or even 1.06. Conversely, if the exchange rate can hold above the 21-day moving average, a rebound may be possible.

Tariff Policies Trigger Chain Reactions

On April 2, the US “reciprocal tariffs” policy is set to be implemented, becoming the biggest variable shaking up the European market. According to the European Central Bank’s assessment, if the US imposes a 25% tariff on European imports, the Eurozone’s economic growth rate could decline by about 0.3 percentage points in the first year. This negative outlook is suppressing the upward momentum of the euro.

Divergence in Central Bank Policy Expectations

Fundamentally, there is an interesting divergence in the easing paths of the European and US central banks. Market expectations for the Federal Reserve to cut interest rates this year have been revised down from three times to two, indicating a more cautious approach. Meanwhile, expectations for the European Central Bank to cut rates are rising — ECB Governing Council member Villeroy de Galhau explicitly stated that the current 2.5% deposit rate could be lowered to 2% by late summer. According to market pricing, the rate cut in June is fully priced in, with a 65% probability of a rate cut in April, and a series of easing measures may be introduced in the second half of the year.

Investors Should Exercise Caution

Morgan Stanley advises investors to adopt a cautious stance before April 2, considering closing long positions on the euro and pound to hedge potential risks. Essentially, the future direction of the euro against the dollar depends on the tug-of-war between these two forces: if tariff policies are more aggressive than expected, the euro will face further downward pressure; conversely, if negotiations leave room and tariff measures are less severe than anticipated, the euro may have a chance to breathe.