Does Interest Rate Differential Arbitrage Guarantee Long-Term FX Trend Direction?

Why does EUR USD drop for three months straight even when the ECB keeps interest rates significantly higher than the Federal Reserve? Retail fundamental traders rely heavily on interest rate parity and central bank yield differentials to determine long-term trend bias. However, sovereign bond yield spreads, relative economic growth surprises, and global capital flows routinely override simple central bank interest rate gaps. Does trading purely off central bank interest rate differentials create a false sense of security in volatile macro regimes?