Growing speculation over the European Central Bank (ECB) ending QE before year end supported the Euro’s hefty appreciation with prices topping 1.2555, levels not seen since December 2014.

With the Eurozone economy growing an impressive 2.5% during 2017, its best for more than a decade, Euro strength was a dominant market theme in January.

Interestingly, the Euro rally eventually ran out of steam as fears resurfaced over low inflation in the Euro area.

Harmonized inflation in Europe dipped to its weakest level at 1.1% in February, slipping away from the European Central Bank’s target of just under 2%.

It’s interesting that the currency remained pressured in March, despite the ECB taking a small step towards monetary policy normalization by dropping their “easing bias”.

On the other side of the Atlantic, the Greenback remains driven by conflicting fundamental themes.

Lingering concerns over a potential global trade war negatively impacting U.S. economic growth, and political instability in Washington, continue to weigh heavily on the Dollar.

Fluctuating expectations and mixed signals over how many times the Federal Reserve may raise interest rates this year have not helped matters.

Despite this, a sense of optimism over fiscal developments – such as tax cuts and increased infrastructure spending boosting economic growth – could cushion the Dollar’s downside.

It is fair to say that the outlook for the Dollar remains shaky, especially when considering that the positive impacts of tax cuts could be overshadowed by the negative effects of a global trade war.

The EURUSD has scope to venture lower amid the growing interest rate differential between the ECB and Fed.

It should be kept in mind that a strong Euro complicates the ECB’s efforts to reach its inflation goal by making exports less attractive and imports cheaper.

Although low inflation fears are likely to impact Euro bulls, Mario Draghi could resort to verbal intervention if the single currency continues to appreciate.

Dollar sensitivity to monetary policy speculation is likely to heavily impact the EURUSD’s trajectory as we enter Q2.

Signs of U.S. labour markets strengthening and wage growth accelerating could heighten speculations that the Fed will adopt a more aggressive approach on rate hikes this year, which would ultimately boost the Dollar.

Focusing on the technical perspective, the EURUSD has found comfort within a wide 300 pip range on the monthly charts, with support found at 1.2200 and resistance at 1.2500.

Although the monthly trajectory points to further upside, a failure for bulls to defend 1.2200 could result in prices trading lower.

Technical traders will continue to closely observe the candlestick formations on the weekly charts.

The shooting star candlestick created on the final week of March may trigger a decline towards 1.2200.

A weekly close below this level is likely to invite a further decline towards 1.2020. Alternatively, bulls need to conquer 1.2420 before prices can challenge 1.2530 and 1.2700, respectively.

On the daily charts, the two key intraday levels of interest are at 1.2235 and 1.2350.