EUR/USD tests resistance as the central bank divergence starts to flip in the euro’s favour. These are the key levels to watch

EUR/USD is trading at its highest level in weeks as the dollar slips to a six-week low and the central bank divergence that defined most of 2025 is starting to reverse. With the Fed firmly on hold and ECB officials signalling a potentially forceful response to inflation, the euro has quietly reclaimed a key structural level heading into the Iran ceasefire deadline on 21 April.

Key takeaways:

• EUR/USD has broken above the descending trend line and reclaimed the range equilibrium
• The 1.19 range high is the most important level to watch for the upcoming sessions
• A pullback to the 1.167 confluence zone could offer a textbook retest if RSI holds above its 50% level
• The macro backdrop is shifting in the euro’s favour as the Fed-ECB divergence narrows

Daily chart analysis

EUR/USD has broken above the descending trend line we highlighted in our previous EUR/USD article, and price is now trading above the range equilibrium. This is a meaningful structural shift after months of range-bound trade.

• The 20, 50, and 200-day SMAs are sitting in confluence just below price at around 1.167, aligning with the range equilibrium and the local long reload zone. This makes 1.167 the most natural area for buyers to re-engage on any pullback
• The RSI is approaching overbought territory, which suggests the move higher may be due for a pause in the near term
• If price pulls back to the 1.167 confluence and RSI successfully retests and holds its 50% level, it could set up a clean continuation. A move like that would reinforce the bullish RSI range and open the door to a retest of the range highs
• Above, 1.19 is the most important level to watch. A daily close above it could confirm the transition out of the 2025 range and open the door to a broader structural move higher
• Below, 1.14 remains the range lows support, and would only come back into focus if the break above the trend line fails and price rotates back through the middle of the range

Macro context

Two forces are converging to drive the move higher in EUR/USD.

The dollar side:

• DXY is trading at a six-week low, though the move has been more of a gradual drift than an outright breakdown
• Ceasefire optimism has eroded demand for the dollar as a safe haven, with Trump saying a permanent US-Iran deal is close and claiming Iran has agreed to abandon nuclear ambitions and reopen the Strait of Hormuz. Tehran has yet to verify these claims
• Softer oil prices have eased inflation fears, pushing Fed rate cut expectations further out

The euro side:

• Eurozone March CPI was finalised yesterday at 2.6% year-on-year, up sharply from 1.9% in February and above the ECB’s 2% target
• ECB President Christine Lagarde has signalled that the bank could respond in a forceful way to a more severe energy price surge
• Markets are now pricing in up to three ECB hikes for 2026, a sharp repricing from where expectations sat at the start of the year
• Recent ECB commentary has emphasised upside inflation risks tied to the Iran conflict and a reluctance to repeat the “look through” errors of 2022

For most of the last two years, the central bank divergence worked in the dollar’s favour, with the Fed tightening into a dovish ECB. That gap has now narrowed significantly, and at the margin it appears to be reversing. A hawkish ECB into a Fed that is on hold is a fundamentally different backdrop for EUR/USD than the one that kept the pair rangebound through 2025.

What to watch

• The 21 April ceasefire deadline is the single biggest variable across dollar pairs. A permanent deal could accelerate the dollar’s losing streak, while a collapse back into escalation could hand the dollar a bid and pressure EUR/USD back toward range support
• ECB speakers over the coming sessions. The hawkish repositioning needs follow-through. Any dovish shift could take the wind out of the euro’s recent move
• The 1.19 range high on the daily chart. A clean break could confirm the structural shift out of the range
• The 1.167 confluence on any pullback. Holding this level would keep the bullish structure intact, while a failure here could put the recent break at risk

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