EUR/USD Price Forecast: Downside looks likely below 20-day EMA amid US-EU trade tensions
- EUR/USD trades cautiously as US President Trump has imposed 30% tariffs on imports from the EU.
- EU Von Der Leyen warns of proportionate countermeasures to safeguard bloc’s interest.
- This week, the US CPI data for June will be the key trigger for the US Dollar.
The EUR/USD pair trades with caution around 1.1670 during the Asian trading session on Monday. The major currency pair faces selling pressure as the Euro (EUR) slightly underperforms its peers, following the imposition of 30% tariffs by United States (US) President Donald Trump on imports from the European Union (EU), which will become effective from the August 1.
Alongwith EU, Mexico has also received letter from the US, specifying 30% tariffs, alongwith threat to increase the same if the nation retaliates or considers countermeasures.
Meanwhile, EU President Ursula von der Leyen has stated that his team continues to negotiate trade terms with Washington and has expressed confidence that the 27-nations bloc will strike a deal before the August 1 deadline. However, she has warned that the trading bloc could announce proportionate countermeasures, if required, to safeguard its interest.
In the US, investors await the Consumer Price Index (CPI) data for June, which will be released on Tuesday. The inflation data will significantly influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook. Economists expect US inflationary pressures to have grown at a faster pace in June.
EUR/USD corrects to near the upward-sloping trendline plotted from the February 25 low of 1.0360 plotted on the daily timeframe. The 20-day Exponential Moving Average (EMA) continues to provide support to the pair around 1.1660.
The 14-day Relative Strength Index (RSI) slides into the 40.00-60.00 range, suggesting that the bullish momentum has faded. However, the bullish bias is intact.
Going forward, the pair could enter a bearish trajectory and slides toward the June 23 low of 1.1454 and the round-level support of 1.1400, if it breaks below the June 24 low of 1.1573.
On the flip side, an upside move by the pair above the July 1 high of 1.1830 will open the door towards the round-level figure of 1.1900, followed by the psychological resistance of 1.2000.
EUR/USD daily chart
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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