EUR/USD slips below 1.16 as Dollar gains on renewed US–China trade woes, French turmoil
- EUR/USD falls 0.41% to 1.1571 as Trump revives tariff threats before softening tone toward China.
- French PM Lecornu faces a no-confidence motion after reappointment, adding to Eurozone political stress.
- Traders eye key speeches from Fed Chair Powell and ECB President Lagarde for policy guidance this week.
EUR/USD drops during the North American session on Monday, down 0.41% as the US Dollar (USD) trims some of its Friday losses spurred by US President Donald Trump's threats to impose additional duties on Chinese products. The pair trades at 1.1571 at the time of writing after hitting a daily peak of 1.1630.
Greenback regains strength amid tariff threats; French political instability weighing on the Euro
The US Dollar is recovering, after an episode of an escalation of the trade war between the US and China, which witnessed Trump threatening to impose additional tariffs of 100% on China’s goods, effective November 1. The retaliation was a response to China’s increasing restrictions on rare-earth and imposing port fees on US ships.
On Sunday, Trump backpedaled, posting on this Truth Social account, “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!!”
Consequently, EUR/USD opened Monday’s session with a lower tone, diving below the 1.1600 figure amid the ongoing political turmoil in France, after President Emmanuel Macron reappointed Sébastien Lecornu as Prime Minister.
Lecornu has formed a new cabinet, but opposition leaders Marine Le Pen and Eric Ciotti have already put up a no-confidence motion aimed at toppling Lecornu’s government.
Uncertainty about France could keep the Euro pressured and extend the US Dollar gains versus the shared currency. This, despite the ongoing central bank divergence, suggests that further upside in the EUR/USD pair is seen.
The weekly economic docket will feature speeches by the Federal Reserve (Fed) Chair Jerome Powell and the European Central Bank (ECB) President Christine Lagarde.
Daily market movers: Greenback’s advance outweighs the Euro, despite Fed dovish comments
- The US Dollar Index (DXY), which tracks the performance of the buck’s value against a basket of six currencies, rallies 0.35% to 99.24, a headwind for the shared currency.
- Philadelphia Fed President Anna Paulson advocates for additional rate cuts, arguing there are rising risks in the jobs market. She said, “Labor market risks do appear to be increasing - not outrageously, but noticeably. And momentum seems to be going in the wrong direction," so that now deserves to be the focus of policy.
- Besides Lagarde’s speech on Thursday, the economic docket in the Eurozone will feature Germany’s Harmonized Index of Consumer Price (HICP) figures and ECB’s Mario Cipollone speech on Tuesday.
- Last week, the UoM Consumer Sentiment eased slightly to 55 from 55.1, exceeding forecasts for deterioration. The same survey showed that inflation expectations for one year edged lower from 4.7% to 4.6%, and for a five-year period, steadied at 3.7%.
- The poll showed that sentiment declined amongst Democrats. Overall, consumers were pessimistic about future personal finances, and conditions for buying durable goods were unfavorable.
- Money markets are fully pricing in a 25-basis-point rate cut at the Fed’s October 29 meeting, with odds at 97%, according to the Prime Market Terminal probability tool.
Technical outlook: EUR/USD tumbles below 1.1600, eyes on 1.1550
EUR/USD turned short-term bearish after slipping beneath the 100-day Simple Moving Average (SMA) at 1.1633 and the 1.1600 mark. Last Friday, the Relative Strength Index (RSI) drifted below the neutral 50 level, suggesting that downside momentum is gaining steam.
Key support lies at 1.1550, followed by 1.1500, with a break below exposing the August 1 cycle low around 1.1391. On the upside, resistance is seen at 1.1600, 1.1650 and 1.1700. A decisive move above 1.1700 could pave the way for a test of 1.1800 and the July 1 high at 1.1830.
Euro FAQs
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.
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