Despite relatively upbeat forecasts, the euro declined after the release of the ZEW indices, which indicated a significant drop in sentiment across the European business landscape. The indicators plunged into negative territory — a first in many months.
The euro weakened against key cross-currencies and the U.S. dollar, despite the greenback's overall weakness. The U.S. Dollar Index remains near multi-year lows, hovering in the 99 range, underscoring the market's cautious outlook toward the dollar. Still, despite the EUR/USD pullback, entering short positions remains risky. There are no strong reasons to expect a trend reversal or a sustained (this is the key word) move downward. The inability of EUR/USD bulls to secure a position above the 1.1400 handle does not yet signal that sellers have taken control. To reverse the trend, it would take not only a weak euro but also a strong dollar — only then would bears have the momentum to shift the trend in their favor.
Let's return to the ZEW report. As mentioned earlier, nearly all components came out in the "red zone," reflecting growing pessimism among European businesses. For example, the German economic sentiment index dropped sharply from 51.6 to -14.0 (whereas most analysts had forecast a decline to just 11). This marks the first negative reading since October 2023. The eurozone-wide economic sentiment index also dipped below zero — it was expected to fall to 14 points but instead came in at -18.5, the lowest level since December 2022. The only component in positive territory was the current conditions index, which, although still negative (as it has been since December 2021), improved from -86 to -81. One could call this a "spoonful of honey in a barrel of tar."
Following the release, the euro dropped across the board — in nearly all crosses and against the dollar. Despite the modest improvement in the current conditions index, the headline numbers painted a grim picture. All of this comes ahead of the European Central Bank's April meeting, the outcome of which will be announced this Thursday, April 17. The official result is widely expected: the central bank will likely cut interest rates by 25 basis points. The future path of monetary easing, however, remains uncertain. Some analysts believe the ECB will maintain a dovish stance and cut rates twice more before the end of the year. Economists at Societe Generale even allow for more aggressive easing, suggesting a 50-basis-point cut as early as the next meeting.
At the same time, most economists surveyed by Reuters expect only one more rate cut after April. The ZEW indices support the more dovish scenario, which explains the euro's negative reaction.
That said, a EUR/USD trend reversal would require both euro weakness and dollar strength. And the greenback remains under pressure following recent remarks by Trump and members of the Federal Reserve.
Notably, the U.S. president has announced new 25% tariffs — this time on pharmaceutical products. Meanwhile, the U.S.–China trade war continues to escalate. For instance, on Tuesday, it emerged that Chinese authorities have banned airlines from cooperating with U.S. aircraft manufacturer Boeing (in response, Boeing's shares began to fall).
The dollar faced additional pressure due to gloomy forecasts issued by Federal Reserve officials. Fed Governor Christopher Waller, for example, expressed concerns about a potential U.S. recession. He says the White House's tariff policy is "the greatest challenge to the national economy in recent decades." He focused primarily on the rising risk of recession and downplaying inflation risks (arguing that any inflation spike would be temporary). In this context, he voiced support for further monetary easing by the Fed.
I believe EUR/USD still has the potential for further growth despite the disappointing ZEW data. However, entering long positions only makes sense once the pair "regains its footing" — when the price once again rises above the 1.1330 resistance level (the upper Bollinger Bands line on the daily chart). The targets for the northern movement are 1.1370 (Tenkan-sen line on the H4 chart) and 1.1400 (upper Bollinger Bands line on the same timeframe). It's too early to talk about higher levels for now.
