EUR/USD stalls near 1.1780 after multi-year high as US tax bill and yields cap gains
- EUR/USD retreats from 1.1830 high as US tax bill clears Senate and Treasury yields rebound.
- US JOLTS and ISM data support Fed’s wait-and-see stance; Powell noncommittal on July cut.
- ECB’s De Guindos warns EUR/USD above 1.2000 would be “complicated”; bloc data remains mixed.
EUR/USD remained virtually unchanged on Tuesday during the North American session after reaching a multi-year high of 1.1830, before dipping below the 1.1800 level. The approval of US President Donald Trump's “One Big Beautiful Bill” and higher US Treasury yields capped the shared currency’s advance, which remains trading at around 1.1780, flatlined.
Recently, the US Senate passed Trump’s tax bill by a 51-50 vote, with Vice President JD Vance casting the tie-breaking vote. Now the $3.3 trillion tax and spending bill goes to the US House of Representatives, which is set to approve the fiscal package, which “includes the entirety of the president’s legislative agenda in a single package,” according to Bloomberg.
In the meantime, data suggests that the current moderate stance by the Federal Reserve is justified by the state of the US economy. The latest Job Openings and Labor Turnover Survey (JOLTS) for May revealed that the labor market remains solid, with more vacancies than initially forecasted. At the same time, the Institute for Supply Management (ISM) Manufacturing PMI improved but remained in contractionary territory over the last four months.
Meanwhile, central bankers in Portugal are grabbing the headlines. The Fed Chair Jerome Powell adhered to the script of waiting and seeing if tariffs are inflation-prone, while mentioning that he can’t say whether a cut in July is possible or not.
Officials of the European Central Bank (ECB) made comments indicating that inflation is edging lower and the path of rates is skewed to the downside. ECB’s Vice-President Luis De Guindos added that the EUR/USD parity above 1.2000 would be “complicated,” he said at a Bloomberg interview. Other policymakers adopted a more neutral stance, favoring keeping rates unchanged
Across the pond, the Eurozone Harmonized Index of Consumer Prices (HICP) in June was aligned with estimates and May’s data. S&P Global revealed that manufacturing activity in the bloc improved, but it still contracted.
Euro daily market movers: EUR/USD rally stalls as the Greenback stages a recovery
- The US Dollar Index (DXY), which tracks the value of the US Dollar against a basket of six currencies, including the Euro, rises 0.02% to 96.80.
- The latest JOLTS report showed US job openings climbed to 7.769 million in May—the highest level since November—up from 7.391 million and well above expectations of 7.3 million.
- The ISM Manufacturing PMI for June rose to 49.0 from 48.5 in May, exceeding the forecast of 48.8. Despite the improvement, the index remained in contraction territory for a fourth consecutive month.
- Fed Chair Jerome Powell commented that monetary policy remains “modestly restrictive” and declined to commit to a rate cut in July, stating it’s too soon to say, while not ruling it out. He added that absent President Trump’s tariffs, the Fed likely would have lowered rates further.
- ECB President Christine Lagarde says the mission is not yet accomplished, but they are now through that disinflationary process. She added that there is a lot of uncertainty and that they need to remain highly vigilant on inflation and remain data-dependent.
- Data-wise, the Eurozone HCOB Manufacturing PMI in June was 49.5, up from 49.4 in May and slightly above the forecast. Regarding inflation, HICP in June was 2% YoY, aligned with projections, while Core HICP stood at 2.3% YoY, unchanged from the previous month.
- News that the European Union (EU) would accept Trump’s universal tariffs pushed EUR/USD higher. Nevertheless, the EU wants the US to lower duties on key sectors, including pharmaceuticals, alcohol, semiconductors, and commercial aircraft.
- The crucial US Nonfarm Payrolls report in June is projected to show that the jobs market is softening, with estimates suggesting that the economy added just 110,000 people to the workforce, below last month’s 139,000. The Unemployment Rate is projected to rise from 4.2% to 4.3%.
Euro technical outlook: EUR/USD to consolidate around 1.1800 in the near-term
The uptrend remains intact, but the EUR/USD pair appears poised for a potential pullback. The formation of a ‘doji’ after rallying over 3.29%, suggests that possible consolidation lies ahead. The Relative Strength Index (RSI) indicates that bullish momentum remains.
If EUR/USD clears 1.1800, the next resistance would be the yearly peak of 1.1829, followed by 1.1850 and 1.1900. In the event of further weakness, if the pair slides below 1.1750, expect a drop to 1.1700. Key support lies below the latter, at the June 26 daily low of 1.1653 and 1.1600.
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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