EUR/USD rallies hard as markets bet on tariff pivot
- EUR/USD rose 1.4% on Tuesday, cracking the 1.0600 level.
- Data was of little consequence on Tuesday as markets focus on tariffs.
- ECB rate call in the pipe for Thursday, US NFP jobs data due on Friday.
EUR/USD pinned the gas pedal on Tuesday, surging 1.4% and climbing 140 pips in a single session as markets sell off the US Dollar and bet that US President Donald Trump will find a reason to walk back his own tariff threats. Key data on both the European and US side are due later this week, but trade war rhetoric is ruling the roost for the midweek.
Tariffs, no tariffs
Staying true to form, US President Donald Trump is already seeding a pivot on his own tariff threats. A stiff tariff package of 25% on imported goods from Canada and Mexico went into effect at midnight EST. However, despite a brief spat of risk aversion early in the US session, currency markets quickly recovered their feet and bet big on another tariff policy reversal or delay from the Trump administration. Key personnel in the Trump team, specifically Commerce Secretary Howard Lutnick, admitted to Fox News viewers that a pivot on this week’s tariffs may already be in the works, to be announced by President Trump on Wednesday.
Economic data on the European side is a lean offering during the midweek market session as Fiber traders knuckle down for the one-two punch of the European Central Bank’s (ECB) March rate call on Thursday, as well as the latest iteration of US Nonfarm Payrolls (NFP) jobs figures, slated for Friday. This week’s NFP print will likely draw even more attention than usual as investors start to keep an eye out for any signs of economic weakness as consumers and businesses begin to crack under the weight of continued threats of a global trade war by President Trump.
Wednesday brings US ADP Employment change figures, as well as an ISM Services Purchasing Managers Index (PMI) survey results update. ADP jobs counts are expected to ease slightly to 140K from 183K, while the ISM Services PMI is forecast to tick down slightly to 52.6 from 52.8.
The ECB is broadly expected to trim interest rates by another quarter of a percent on Thursday, bringing the main reference rate down to 2.65% from 2.9%, and the Deposit Facility Rate is forecast to fall by a matching amount to 2.5% from 2.75% as the ECB tries to get out ahead of growing recession risks and tries to bolster the EU’s wide and varied domestic economy.
EUR/USD price forecast
The Euro put in its best single-day performance in over two years on Tuesday, climbing nearly 1.4% and bringing its two-day bull run to an impressive 2.4% bottom-to-top. EUR/USD broke through the 1.0600 handle for the first time since last December, and is on pace to reach new five-month highs as long as Fiber bulls are able to keep hitting the buy button.
However, significant technical resistance is beginning to mount. The 200-day Exponential Moving Average (EMA) lies in wait near 1.0635, and has a habit of making a mess of what would otherwise be smooth trends.
Technical oscillators are also caught in overbought territory, implying buyers could run out of gas quickly and spark a fresh round of bearish bidding.
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.