EUR/USD could face further downward pressure following a pullback from its two-month high struck Thursday. The euro could come under traders' scrutiny after the German government downgraded its GDP forecasts for 2026 and 2027, projecting growth of only 0.5% and 0.9%, respectively. Additionally, inflation projections have been raised to 2.7% for 2026 and 2.8% for 2027, raising concerns among investors about the euro zone's economic stability. In contrast, U.S. economic indicators suggested resilience, with weekly jobless claims falling and the Philadelphia Fed business conditions index surpassing expectations.

This divergence in economic performance, if continued, could drive investors towards the dollar as its yield advantage over the euro could increase. Currently, spreads are widening between U.S. and German 2-year bonds . Additional widening could add further downward pressure on EUR/USD.

Additionally, oil prices have stabilized after declining from the March highs, but any resurgence could prove bearish for the euro.

Technical analysis also raises concerns for EUR/USD bulls, as the pair's ascent from March lows has hit structural resistance around 1.1800. Daily indicators show a divergence in the RSI at the two-month high traded today, coupled with the formation of an inverted hammer candle, signaling potential weakness ahead.

These factors collectively suggest a challenging outlook for EUR/USD in the near term.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)