EUR/USD rises as US–EU deal hopes offset trade jitters ahead of ECB's decision
- FT report sparks rebound in EUR/USD after early dip on Japan–US deal.
- US advisor Navarro urges caution on leaked EU deal terms, Dollar remains soft.
- EU consumer confidence improves slightly; ECB policy decision eyed on July 24.
The EUR/USD advanced during the North American session, up 0.16%, as rumors had grown that the United States and the European Union (EU) are about to sign a deal, similar to the one inked between Washington and Tokyo on Tuesday. At the time of writing, the pair traded above 1.1770, having reached a daily low of 1.1710.
Trade news in the US is grabbing the headlines, keeping investors on their toes as mood fluctuates between risk-on/off. The trade deal between Japan and the US, under which Japan pays 15% tariffs on imports to the US, triggered the first leg down for EUR/USD.
Nevertheless, an article in the Financial Times stating that the EU is close to sealing a deal with Washington, with some similarities to the one signed by Tokyo, sparked a U-turn, with the EUR/USD extending its gains past 1.1750.
Regarding this, the US trade advisor Peter Navarro said that leaks about an agreement should be taken “with a grain of salt,” adding that the US does not negotiate in public.
On the data front, US housing prices reached their highest level for June since 1999, with a 2% increase from the same period a year earlier. Existing Home Sales plunged -2.7% MoM to 3.93 million in June from 4.04 million a month ago.
The EU economic docket revealed that Consumer Confidence improved to -14.5 from -14.7, though it remains well below its long-term average, according to the European Commission.
Eyes turn to the European Central Bank's (ECB) monetary policy decision on July 24.
Daily digest market movers: EUR/USD jumped as a trade deal between the EU-US looms
- The US Dollar Index (DXY), which tracks the buck's value against a basket of six currencies, drops 0.20% to 97.20, boosting the Euro’s advance against the former.
- The EUR/USD extended its rally to four straight days, yet it remains shy of testing 1.1800. However, the FT’s article improved investors' risk appetite due to the significant reduction in EU tariffs from 30% effective on August 1 to 15%, as revealed by people familiar with the trade talks between Washington and Brussels.
- The FT mentioned that “Both sides would waive tariffs on some products, including aircraft, spirits and medical devices, the people said.”
- Despite this, EU member states are set to vote on EUR 93 billion of counter-tariffs on US goods on Thursday, and a broad majority of EU members would support using the anti-coercion instrument in the event of no US trade deal and US tariffs of 30%.
- US Treasury Secretary Scott Bessent said that the White House is more concerned with the quality of the deals than their timing. When asked about extending the deadline, he said it would be up to Donald Trump to decide.
- Traders are eyeing the European Central Bank (ECB) monetary policy decision on July 24. The odds of the ECB keeping rates unchanged are 60%, with a modest chance of a 0.25 percentage point cut at 40%. Compared to yesterday, the odds of a cut increased from 37.5%.
Technical outlook: EUR/USD poised to test 1.1800 and the yearly peak in the near-term
The EUR/USD is upwardly biased after clearing the July 22 high of 1.1760, opening the door to test 1.1800. A breach of the figure will expose the year-to-date (YTD) high of 1.1830, followed by 1.1850. Overhead lies 1.1900.
On the other hand, if EUR/USD drops below 1.1750, the 20-day Simple Moving Average (SMA) could act as a magnet at 1.1714, before the pair slides toward 1.1700 and below. The next area of demand would be the 50-day SMA at 1.1544.
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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