EUR/USD struggles to recover on risk aversion, ahead of Fed decision
- Geopolitical concerns and higher Oil prices are hurting risk appetite and could weigh on the Euro.
- The US Dollar could strengthenon investors' fears of higher US involvement in the Israel-Iranwar.
- EUR/USD trims some losses with all eyes on the Fed's decision.
The EUR/USD pair is picking up on Wednesday after a significant decline on the previous day. From a wider perspective, however, he escalating tensions in the Middle East, the ongoing uncertainty about global trade, and the sharp acceleration in Oil prices are keeping upside attempts limited.
The common currency is now struggling to regain the 1.1500 level, still near 1% below last week's highs, with market sentiment frail as the war between Israel and Iran enters the sixth day, with the US taking a more aggressive tone against the Islamic Republic.
Comments from US administration officials suggesting that President Donald Trump would be considering striking Iran, to confirm a total surrender and the end of its nuclear program, have unnerved investors, wary that the conflict might spill into a regional war in a highly volatile area.
Crude prices appreciated beyond $3 on Wednesday to reach levels close to the $75.00 area, a 16% increase from May's prices, posing additional weight on the Euro. The Eurozone is a net Crude importer, and rising prices would hurt the region's growth prospects.
In the macroeconomic front, US Retail Sales data confirmed the negative impact of trade uncertainty on the US economy, but the US Dollar's reaction was marginal, with geopolitical tensions front and center on investors' minds.
The focus on Wednesday is on the Federal Reserve's (Fed) monetary policy decision and Chairman Jerome Powell's views on how to deal with weakening growth and potentially higher inflation. The US Dollar will be sensitive to changes in the economic projections or the dot plot that might alter interest rate expectations.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.24% | -0.24% | -0.16% | -0.05% | -0.33% | -0.28% | -0.03% | |
| EUR | 0.24% | 0.00% | 0.03% | 0.10% | -0.21% | 0.02% | 0.21% | |
| GBP | 0.24% | -0.00% | 0.04% | 0.09% | -0.21% | -0.12% | 0.22% | |
| JPY | 0.16% | -0.03% | -0.04% | 0.14% | -0.15% | 0.10% | 0.38% | |
| CAD | 0.05% | -0.10% | -0.09% | -0.14% | -0.28% | -0.22% | 0.13% | |
| AUD | 0.33% | 0.21% | 0.21% | 0.15% | 0.28% | 0.22% | 0.44% | |
| NZD | 0.28% | -0.02% | 0.12% | -0.10% | 0.22% | -0.22% | 0.21% | |
| CHF | 0.03% | -0.21% | -0.22% | -0.38% | -0.13% | -0.44% | -0.21% |
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).
Daily digest market movers: The Euro picks up despite increasing geopolitical tensions
- Israel continued pounding Iran for the sixth consecutive day. US President Trump demanded the "unconditional surrender" of Tehran's authorities and vowed to deploy more fighter jets to support the Israeli army in a clear sign of America's higher commitment in the war.
- Later today, the Federal Reserve is widely expected to leave interest rates steady at the current 4.25%-4.5% range, but the soft US data seen recently might have prompted the bank to tone down its hawkish stance. Any hint of a rate cut in the coming months is likely to send the US Dollar lower against the Euro.
- Futures markets are pricing two interest rate cuts in 2025, with a 60% chance that the first of them will take place in September, according to data released by the CME Fed Watch tool.
- US Retail Sales data from Tuesday showed a larger-than-expected decline. US consumption decreased at a 0.9% rate in May, beyond the 0.7% contraction expected, and April's reading was revised down to a 0.1% drop from the previous estimation of a 0.1% increase.
- In the Eurozone, the German ZEW Economic Sentiment Index, also released on Tuesday, improved beyond expectations, rising to 47.5 in June from 25.2 in May, exceeding the market forecasts of a 35.0 reading. The data, however, failed to provide any significant support to the Euro.
Technical analysis: EUR/USD extends its reversal with 1.1475 support in focus
EUR/USD broke below the triangle pattern on Tuesday, confirming a deeper reversal from last week's highs, above 1.1600. The pair is pinching up on Wednesday, but the 4-hour Relative Strength Index (RSI) remains below the 50 level, suggesting that bearish momentum could grow.
The pair has returned above 1.1500 and might retest the base of the broken triangle, now at 1.1545, before extending lower. Immediate support is at Tuesday's low, 1.1477. Below here, the next targets are 1.1370 (June 6 and 10 lows) and 1.1315 (May 30 low).
On the upside, a confirmation above the mentioned 1.1545 would ease bearish pressure and bring the 1.1630-1.1640 area (June 12 and 16 highs back to the focus.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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