EUR/USD staged a sharp recovery Monday, bouncing from a 27-month low of 1.0125 to 1.0335 as the U.S. postponed tariffs on Mexico, triggering broad-based USD selling. The pair benefited from a weaker dollar, stronger risk appetite, and record gold prices, but gains were capped as U.S. yields firmed and German-U.S. spreads widened. While the euro’s rebound was impressive, the session ended with the pair retreating toward 1.0280, reflecting lingering concerns over trade risks and economic divergence between the U.S. and eurozone.

Technically, EUR/USD remains under pressure despite the bounce. The pair continues to trade below key falling moving averages, and the failed breakout above the September 30 downtrend line reinforces the bearish outlook. Falling daily and monthly RSI levels suggest continued downward momentum, with immediate resistance at 1.0335 and stronger barriers near 1.0400. Support remains at 1.0125, with a break lower potentially accelerating losses toward parity, especially if spreads continue to widen in favor of the dollar.

Macro risks continue to favor further downside for EUR/USD. U.S. January manufacturing PMI showed renewed expansion, with rising prices and stronger employment, reinforcing the Fed’s cautious approach on rate cuts. Meanwhile, eurozone PMI remains in contraction despite slight improvements. Trump’s Sunday comments about potential tariffs on Europe have increased concerns about the eurozone’s vulnerability, and further escalation could add pressure on the ECB to ease policy. If yield spreads widen further and risk sentiment weakens, EUR/USD’s rally may be short-lived, with sellers likely targeting a return toward the 1.0100 level.