The EUR/USD finished the week up by nearly 1% on Friday, yet ended the daily session flat, following economic data from the United States (US) that was worse than expected, but offset by positive trade news. With the Greenback cutting losses, the pair trades at 1.1741 virtually unchanged.
Sentiment remains upbeat as the latest trade news suggests that the US and the European Union (EU) may be close to a deal. The economic docket in the US revealed that Durable Goods Orders disappointed investors, after posting stellar double-digit figures in May, as indicated by the US Department of Commerce. Nevertheless, strong jobless claims figures, despite weaker manufacturing activity as shown by the S&P Global Manufacturing PMI, sparked investors' reaction to discount a less dovish Federal Reserve at next week's meeting.
In the EU, the European Central Bank kept rates unchanged, with the Governing Council adopting a meeting-by-meeting approach amid a split division between doves and hawks in the Governing Council. Friday’s schedule was empty, though following week calendar will be packed.
US President Donald Trump said that they’re near a deal with China. Regarding the EU, he said there’s a chance, but stated that they may have to lower their tariffs.
Earlier news during the week that the US struck a deal with Japan boosted the EUR/USD. Another leg-up was gained after the Financial Times (FT) reported that the EU and the US are set to sign a deal before the August 1 deadline, as mentioned by sources familiar with the matter.
The US economic schedule will feature the Federal Open Market Committee (FOMC) meeting on July 29 – 30. The Fed is expected to hold rates unchanged, with a 98% chance of maintaining rates at around the 4.25%-4.50% range.
EUR/USD is consolidating after hitting a weekly high of 1.1788, just shy of the key 1.1800 level. While the Relative Strength Index (RSI) remains in bullish territory, momentum is waning as the indicator nears its neutral zone.
A break below the 20-day Simple Moving Average (SMA) at 1.1714 could open the door for a retest of the 1.1700 support. Further downside would expose the 50-day SMA at 1.1556. On the upside, a sustained move above 1.1800 would bring the year-to-date high at 1.1829 into focus, with the next resistance seen at 1.1850.
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.