EUR/USD gives up some initial gains on further de-escalation in US-China trade war
- EUR/USD surrenders some of its early gains as the US Dollar bounces back on improvement in US-China trade relations.
- Beijing has rolled back non-tariff measures on 45 US entities.
- The EU is prepared with countermeasures if trade talks with the US fail.
EUR/USD gives back half of its intraday gains during European trading hours on Thursday. Still, the major currency pair is 0.2% higher, trading just above 1.1200 at the time of writing. The pair faces selling pressure as the US Dollar (USD) recoups some of its initial losses on further de-escalation in the trade war between the United States (US) and China.
The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, against six major currencies, recovers to near 100.85 from the intraday low of 100.60.
During the European trading session, US Treasury Secretary Scott Bessent stated that Washington is going into a “series of negotiations” with China to “prevent escalation” in trade tensions again. The comments from Bessent have increased investors’ confidence that the world’s two largest powerhouses are actively focusing on reaching a trade deal, a scenario that will lift global economic growth. “We [US] now have a mechanism with China counterparts,” Bessent added.
Before comments from US Treasury Bessent, Beijing suspended non-tariff measures taken against 45 US entities, which it imposed on April 4 after the imposition of reciprocal tariffs by US President Donald Trump on April 2, Reuters reported. The decision from the Chinese Commerce Ministry came in the wake of the agreement between Washington and Beijing for a 90-day pause in the trade war, in which they lowered tariffs by 115%.
Going forward, the next major trigger for the US Dollar will be the speech from Federal Reserve (Fed) Chair Jerome Powell, and the Producer Price Index (PPI) and Retail Sales data for April in North American trading hours. Investors will pay close attention to Powell’s speech to get cues about whether the central bank has changed its monetary policy stance after soft US Consumer Price Index (CPI) data for April and a temporary US-China trade truce.
Daily digest market movers: EUR/USD holds significant intraday gains as Euro trades firmly
- EUR/USD surrenders some of its intraday gains as the US Dollar pares some losses. Meanwhile, the Euro (EUR) trades higher among its risky peers despite European Central Bank (ECB) officials signaling that there is room for more interest rate cuts due to decelerating inflationary pressures.
- On Wednesday, ECB policymaker and Governor of the Bank of France François Villeroy de Galhau stated that protectionist policies announced by the US President Trump administration will lead to a “restart of inflation in its economy, not in Europe”, a scenario that paves the way for another rate cut by the summer.
- Going forward, the key trigger for the Euro is trade talks between the European Union (EU) and the US, which have not progressed in a while. During European trading hours, German Finance Minister Lars Klingbeil told the parliament that the continent is prepared with countermeasures if talks with the US do not succeed. However, his comments indicated that the EU's first priority is securing a deal with Washington. “We expect that the negotiations will lead to a good result,” Klingbeil said, adding that "we must respond to the US tariffs with unity and determination.”
- During European trading hours, revised Eurozone Gross Domestic Product (GDP) data for the first quarter have shown that the economy grew at a slower pace of 0.3%, compared to the preliminary estimate and the prior release of 0.4%. Year-on-year, the GDP growth remained 1.2%, as expected. Additionally, the Employment Change in the January-March period has come in higher at 0.3% quarter-on-quarter, compared to flash estimates and the former reading of 0.1%.
Technical Analysis: EUR/USD gains above 1.1200
EUR/USD rises above 1.1200 on Thursday. However, the near-term outlook of the pair is still uncertain as the 20-day Exponential Moving Average (EMA) is acting as a key barrier around 1.1210.
The 14-period Relative Strength Index (RSI) recovers strongly to 50.00 after sliding to near 40.00, suggesting indecisiveness among traders.
Looking up, the April 28 high of 1.1425 will be the major resistance for the pair. Conversely, the psychological level of 1.1000 will be a key support for the Euro bulls.
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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