EUR/USD extended its decline on Wednesday, falling to 1.03825 as a mix of Fed-driven dollar strength and lingering European political concerns weighed on sentiment. While traditional correlations with rate spreads have weakened, investors are increasingly focused on broader macroeconomic and geopolitical risks. Germany’s government lowered its 2025 growth forecast from 1.1% to 0.3%, citing a decline in exports, while political uncertainty in France intensified as budget talks neared collapse. These factors overshadowed the dollar’s diminishing yield advantage, as Fed and ECB terminal rate spreads tightened to their narrowest levels since early November.

From a technical perspective, EUR/USD remains in a bearish trend. The pair broke below key support at 1.0405 and now eyes 1.0350 as the next downside target, with further weakness potentially extending toward 1.0300. Resistance lies at 1.0425, followed by 1.0480, the January 27 high. Daily RSI remains in bearish territory, and the pair’s failure to capitalize on rate differential tightening suggests that fundamental concerns are dominating sentiment. A sustained move below 1.0350 could accelerate selling pressure, exposing further losses.

The next directional move for EUR/USD will hinge on upcoming data. Eurozone consumer confidence and Q4 GDP figures are key risks on Thursday, along with U.S. Q4 GDP, PCE data, and jobless claims. If U.S. data remains robust while European economic and political uncertainties persist, EUR/USD could break lower, reinforcing the downtrend. However, if risk appetite improves and trade concerns ease, the pair may attempt to reclaim lost ground, potentially aligning with the narrowing rate spreads. Until then, EUR/USD bears maintain control, with caution warranted ahead of key macroeconomic developments.