EUR/USD drops below 1.1600 as strong US data slashes Fed cut odds
- US Dollar gains on solid labor and retail figures, while Trump denies Powell firing rumors, calming market nerves.
- US jobless claims and retail sales beat forecasts, boosting the Greenback.
- Fed officials are cautious on cuts, citing inflation and tariff-driven uncertainty.
- Euro is pressured as ECB inflation stays near target, contrasting with hot US CPI.
EUR/USD tumbles during the North American session, down 0.38% following the release of economic data from the United States (US), which triggered a reaction by investors, who trimmed their bets that the Federal Reserve (Fed) will cut interest rates. At the time of writing, the pair traded at 1.1598, having reached a high of 1.1642.
Risk appetite improved after US President Donald Trump denied rumors that he planned to sack Federal Reserve Chair Jerome Powell. News flows had remained light, though economic data from the US continues to justify the Fed’s current stance, which most officials had revealed as appropriate, as the labor market is solid, Retail Sales improved, and Tuesday’s Consumer Price Index (CPI) report for June showed that inflation is on its way to 3%.
Before Wall Street opened, Initial Jobless Claims for the previous week came below estimates. At the same time, Retail Sales for June crushed May’s data and economists' forecasts, although the data suggest that increases in goods and services prices may be responsible for the upbeat report.
Fed speeches had been grabbing the headlines, with Governor Adriana Kugler, San Francisco Fed Mary Daly, and recently. Atlanta’s Fed President Raphael Bostic. He said that the economic outlook remains highly uncertain, adding that tariff adjustments are the cause blocking the path to further rate cuts.
Across the pond, the Eurozone (EZ) inflation report showed that prices ticked up, but they remain closer to the 2% goal by the European Central Bank (ECB), in contrast to US inflation.
Ahead this week, the European economic docket will feature Germany’s Producer Price Index (PPI) figures as the primary catalyst for the Euro, with estimates suggesting that the disinflation process continued to evolve. In the US, the University of Michigan Consumer Sentiment is awaited, along with speeches from the Fed.
Daily digest market movers: EUR/USD struggles at 1.1600 on strong US data
- US economic data showed Initial Jobless Claims for the week ending July 12 fell from 228K to 221K, below the 235K projected by analysts, with the labor market showing strength amid fears of an ongoing slowdown.
- Retail Sales in June exceeded forecasts of 0.1% MoM, rose by 0.6% MoM, and crushed May’s 0.9% plunge, as some of the increase reflects higher prices due to tariffs. Inflation on the consumer side was revealed earlier in the week, with prices rising.
- Fed Governor Adriana Kugler struck a hawkish tone, noting that inflation remains above the central bank’s 2% target and that the labor market continues to show resilience. She also warned that CPI inflation is beginning to broaden into core goods, signaling more persistent price pressures.
- Meanwhile, San Francisco Fed President Mary Daly maintained that the US economy is in a solid position. She acknowledged that June’s CPI data reflected some early effects of tariffs but suggested their overall impact on inflation may be limited. Despite elevated inflation and restrictive policy settings, Daly reiterated her support for two rate cuts in 2025.
- Since last week, several ECB policymakers have voiced their views on the monetary policy outlook. Mario Centeno joined De Guindos, Vujčić, and Villeroy in signaling support for a pause or potential rate cut. Fabio Panetta also backed easing, citing increasing downside risks to growth.
- In contrast, Isabel Schnabel argued that current rates are appropriately positioned, advocating for a hold—an opinion echoed by Robert Holzmann, who emphasized the need to wait for more data before making any adjustments.
EUR/USD technical outlook: Consolidates within the 20 and 50-day SMA, below 1.1600
EUR/USD is neutral-biased, with traders unable to decisively break above 1.1600 on the upside or below 1.1550 on the downside. The Relative Strength Index (RSI) shows that sellers are gathering momentum.
That said, if EUR/USD drops below 1.1550, the next support would be 1.1500, followed by the 50-day SMA at 1.1490, and the 100-day SMA at 1.1266. Conversely, a rise above the 20-day Simple Moving Average (SMA) at 1.1681 would clear the path to challenge 1.1700, followed by the July 20 daily high at 1.1749, ahead of 1.1800 and the record high of 1.1829.
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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