EUR/USD reclaims 1.14 as US data, trade tensions weigh on US Dollar
- EUR/USD climbs over 0.50% as US services sector contracts, private hiring disappoints.
- Trump doubles tariffs on steel and aluminum; markets await Xi call for US-China clarity.
- Mixed Eurozone PMIs and soft inflation may justify ECB rate cut at Thursday’s meeting.
The EUR/USD advances on Wednesday, edging up over 0.50% as the Greenback erases Tuesday’s gains following the release of weaker-than-expected economic data from the United States (US). This, along with uncertainty fueled by the trade war, pushed the pair past the 1.1400 figure after hitting a daily low of 1.1356.
Late on Tuesday, US President Donald Trump signed an executive order that doubled steel and aluminum tariffs from 25% to 50%, effective June 4, for most countries, except the UK, which remains at 25%. In the meantime, traders brace for Trump’s call with Chinese President Xi Jinping later this week, according to the White House.
US data revealed that business activity in the services sector is slowing, according to the Institute for Supply Management (ISM). Earlier, ADP reported that private companies hired fewer people than projected in May, which disappointed investors and could be a prelude to a soft Nonfarm Payrolls report on Friday.
In the Eurozone, HCOB Services and Composite Purchasing Managers Indexes (PMIs) showed mixed results, with some measures expanding while the majority remained in contraction territory. This, along with last Tuesday’s inflation report in the bloc, could justify the European Central Bank (ECB) lowering rates by 25 basis points (bps) at the June 5 meeting.
The EU economic docket will report inflation figures on the producer side, along with the ECB’s decision and President Christine Lagarde’s press conference. Across the pond, the US schedule will feature Initial Jobless Claims for the last week and speeches by Federal Reserve (Fed) officials.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.64% | -0.69% | -0.73% | -0.52% | -0.98% | -1.15% | -0.67% | |
| EUR | 0.64% | -0.06% | -0.08% | 0.11% | -0.34% | -0.54% | -0.04% | |
| GBP | 0.69% | 0.06% | 0.00% | 0.17% | -0.28% | -0.48% | 0.02% | |
| JPY | 0.73% | 0.08% | 0.00% | 0.20% | -0.27% | -0.44% | -0.04% | |
| CAD | 0.52% | -0.11% | -0.17% | -0.20% | -0.46% | -0.65% | -0.15% | |
| AUD | 0.98% | 0.34% | 0.28% | 0.27% | 0.46% | -0.14% | 0.39% | |
| NZD | 1.15% | 0.54% | 0.48% | 0.44% | 0.65% | 0.14% | 0.51% | |
| CHF | 0.67% | 0.04% | -0.02% | 0.04% | 0.15% | -0.39% | -0.51% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
EUR/USD daily market movers: Euro boosted ahead ECB’s monetary policy
- EUR/USD uptrend remains intact, but it is responding to US and Eurozone economic data during the week.
- US ADP National Employment Change in May rose by just 37K, missing forecasts of 110K and down from April’s revised 60K, indicating weak private hiring.
- The US ISM Services PMI fell to 49.9 in May from 51.6, below the expected 52.0, signaling contraction in the services sector.
- The EU HCOB Services PMI improved in May, from 48.9 to 49.7, exceeding estimates for an unchanged figure. The Composite PMI expanded from 49.5 to 50.2, suggesting that overall business activity seems to be gathering steam.
- Financial market players have fully priced in the expectation that the ECB will reduce its Deposit Facility Rate by 25 basis points (bps) to 2% at the upcoming monetary policy meeting.
Euro technical outlook: EUR/USD cracks below 1.1400, bears eye 1.1300
The EUR/USD is upwardly biased, but so far failure to crack the weekly high of 1.1454 reached on June 3 paves the way for a pullback before the uptrend resumes. It should be said the pair hit a lower low during the current session, which means that a daily close below 1.14 could set the stage for a test of 1.13.
If EUR/USD clears 1.1454, the next resistance is 1.1500. Further gains lie overhead, with the next ceiling level seen at April highs of 1.1572, ahead of 1.16.
Conversely, If EUR/USD falls below the June 2 daily low of 1.1344, a move to 1.13 is on the cards. A breach of the latter would expose the 20-day Simple Moving Average (SMA) at 1.1284, followed by the 50-day SMA at 1.1218 and 1.1200.
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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