EUR/USD reaches six-week high near 1.1450 as US Dollar slides on trade jitters
- EUR/USD climbs 0.68% as ISM data shows US manufacturing remains in contraction.
- Trump’s renewed tariff threats on China and metals drive investors away from the Greenback.
- EU’s Sefcovic to meet USTR Greer in Paris amid escalating transatlantic trade tensions.
EUR/USD edges up during the North American session to hit a six-week high of 1.1449, poised to stay above 1.1400 as the US Dollar drops to levels last seen in April as the “Sell America” trade continues. Arising trade tensions between the United States (US) and China, as well as the Eurozone (EU), prompted investors to favor the Greenback with the Euro posting gains of over 0.68%.
Recently, economic data in the US revealed that business activities in the manufacturing sector remained in contractionary territory, according to the Institute for Supply Management (ISM).
Last week, US President Donald Trump revealed that China had violated its agreement with Switzerland. Consequently, he threatens to impose 50% tariffs on aluminum and steel imports, effective on June 4, sparking a flight to safe-haven assets, except the US Dollar.
Beijing responded to Washington’s accusations as “groundless and threatened to respond with forceful measures.”
In other trade news, EU Trade Commissioner Sefcovic is to meet USTR Greer in Paris on Wednesday, according to a spokesperson.
The EU’s economic schedule featured the release of the HCOB Manufacturing Purchasing Managers Index (PMI) for May, with most readings coming mixed, with only Spain showing signs of expansion.
EUR/USD daily market movers: Euro extended rally past 1.1400, eyes on 1.1450
- ISM Manufacturing PMI edged down to 48.5 in May from 48.7, marking the lowest reading since November. The Prices Index remained in expansion at 69.4%, while the Employment Index continued in contraction, improving slightly from 46.5 to 46.8.
- S&P Global Manufacturing PMI stayed in expansion but slipped to 52.0 from 52.3 in April.
- Fed Governor Christopher Waller has shifted to a more dovish stance. He stated that rate cuts remain possible later this year but warned that policymakers are mainly focused on controlling inflation.
- Eurozone May’s HCOB Manufacturing PMI remained in recessionary territory, down at 49.4, though it’s the fifth straight monthly gain and the highest in almost three years. Germany’s Manufacturing PMI revised down to 48.3 from 48.8, underscoring continued weakness in the region’s largest economy.
- EUR/USD traders would have to digest a busy economic schedule in the upcoming week. In the EU, the docket will feature inflation figures, the European Central Bank (ECB) monetary policy, and ECB’s President Christine Lagarde’s press conference. In the US, investors are eyeing the release of Nonfarm Payroll figures, the ISM Services PMI, and the Federal Reserve’s (Fed) speakers.
- Financial market players had fully priced in the expectation that the ECB would reduce its Deposit Facility Rate by 25 basis points (bps) to 2% at the upcoming monetary policy meeting.
Euro technical outlook: EUR/USD surpasses key resistance levels, buyers target 1.1500
EUR/USD uptrend remains intact, as indicated by the daily chart; however, the trend appears overextended unless buyers reclaim higher prices. The Relative Strength Index (RSI) is bullish, indicating that buyers are in control. However, the ECB’s looming monetary policy decision, with expectations for a rate cut, could pave the way for a retracement.
If EUR/USD climbs past 1.1450, this could open the door to challenge the year-to-date (YTD) peak hit on April 21 at 1.1573. Instead, if the shared currency weakens and falls below 1.1400, the first support would be 1.1350. A breach of it, will expose 1.13 and the 20-day Simple Moving Average (SMA) at 1.1277.
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.