- EUR/USD wobbles around 1.0830 as investors have been sidelined, focusing on Trump’s reciprocal tariff measures to be released on Wednesday.
- This week, the US Dollar will also be influenced by the US ISM PMI and a slew of employment-related data, ending with the NFP for March on Friday.
- The EU Commission agrees to provide a ‘term sheet’ of concessions for the US.
EUR/USD trades sideways around 1.0830 in Monday’s European session. The major currency pair consolidates as the US Dollar (USD) falls for the third trading day in a row ahead of the planned reciprocal tariff announcement by United States (US) President Donald Trump on Wednesday. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, posts a fresh 10-day low around 103.75.
Financial market participants expect that Trump’s reciprocal tariffs will be unfavorable for economic growth and will reignite inflation across the globe, including the US. According to the Washington Post, the President keeps telling his advisers to increase trade measures, and in recent days, he has brought back the idea of a universal tariff that would be applicable to most imports, no matter which country they come from.
The Washington Post also showed that US President Trump expressed regret for not imposing broader tariffs in his first term and was confident that levies would be a win for the US. Higher import duties will bring back manufacturing jobs and add trillions in government revenue.
This week, investors will also focus on a slew of US economic data, such as the ISM Manufacturing and Services Purchasing Managers Index (PMI) and labor market-related indicators, which will influence market speculation for the Federal Reserve’s (Fed) monetary policy outlook.
According to the CME FedWatch tool, the Fed is expected to keep interest rates at their current levels in the May policy meeting. However, the probability for an interest rate cut in June has increased to 83.5% from 65.6% recorded a week ago.
Daily digest market movers: EUR/USD to be influenced by flash German HICP data
- In Monday’s session, the Euro (EUR) will be influenced by preliminary German Harmonized Index of Consumer Prices (HICP) data for March, which will be published at 12:00 GMT. German HICP is estimated to rise by 2.4% year-over-year compared to the 2.6% increase seen in February.
- On Friday, France and Spain’s March preliminary inflation data showed that price pressures rose at a slower-than-expected pace. The impact of German inflation is expected to be limited on market expectations for the European Central Bank’s (ECB) monetary policy outlook as investors anticipate a resurgence in inflation in the Eurozone due to Donald Trump’s tariff agenda.
- Investors expect President Trump to impose significant tariffs on the Eurozone as he has criticized the European Union (EU) for not buying American goods. In 2024, Ireland and Germany were the fourth and fifth, respectively, largest nations having trade surplus with the US, according to the World Population Review. Trump’s higher import duties on the Eurozone would significantly impact its economic growth. During European trading hours, ECB President Christine Lagarde stated that any ensuing trade war would be a lose-lose scenario and lower Eurozone growth by at least 0.3%.
- Last week, Trump also imposed 25% tariffs on imports of foreign cars and light trucks, which will come into effect on Wednesday. In response, the EU Commission warned of retaliatory measures but later agreed to provide concessions to the US to secure the partial removal of tariffs that have already hit and are expected to increase further on April 2, Bloomberg reported.
Technical Analysis: EUR/USD consolidates around 1.0830
EUR/USD trades indecisively around 1.0830 at the start of the week. The near-term outlook of the pair remains firm as it holds the 20-day Exponential Moving Average (EMA), which trades around 1.0773.
The 14-day Relative Strength Index (RSI) cools down below 60.00, suggesting that the bullish momentum is over, but the upside bias is intact.
Looking down, the December 6 high of 1.0630 will act as the major support zone for the pair. Conversely, the psychological level of 1.1000 will be the key barrier for the Euro bulls.
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.
