EUR/USD climbs above 1.14 on risk-on mood, ECB turns hawkish
- Euro gains as Sino-US trade talks ease tensions and ECB officials signal limited rate cuts ahead.
- ECB’s Kazimir and Schnabel push back on extended easing expectations.
- NY Fed survey shows inflation expectations dipped, but household outlook worsened.
EUR/USD advanced on Monday during the North American session, driven by upbeat market sentiment fueled by high-level US-China tariff talks held in the United Kingdom. This, along with a perceived “hawkish” cut by the European Central Bank (ECB), pushed the pair above 1.1400, yielding gains of over 0.25%.
The market mood shifted positively on Sino-US news. Meanwhile, The Wall Street Journal revealed that Trump granted US Treasury Secretary Bessent some flexibility to lift export controls on China. Greenback was boosted by the headline but turned negatively on the day as investors seeking risk drove US equities higher.
A scarce economic docket in the US featured the release of the New York Fed Survey of Consumers Expectations (SCE), which showed that inflation expectations for one, three and five-year periods edged lower. Although that is positive, the poll showed that households' perceptions of their current and future financial situation had deteriorated.
In the Eurozone (EU), the docket is scarce, but ECB officials led by the Bundesbank chief Joachim Nagel, ECB’s Isabel Schnabel, and Kazimir. Nagel said that the ECB should be flexible on rates, and Schnabel noted that the ECB should not expect sustained de-coupling with the Fed. Kazimir turned hawkish, saying the central bank is nearly or already at the end of an easing cycle.
Euro PRICE This week
The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.26% | -0.24% | -0.22% | -0.08% | -0.37% | -0.58% | -0.03% | |
| EUR | 0.26% | 0.00% | 0.03% | 0.18% | -0.07% | -0.33% | 0.22% | |
| GBP | 0.24% | -0.01% | 0.12% | 0.17% | -0.08% | -0.34% | 0.21% | |
| JPY | 0.22% | -0.03% | -0.12% | 0.13% | -0.21% | -0.42% | 0.05% | |
| CAD | 0.08% | -0.18% | -0.17% | -0.13% | -0.31% | -0.50% | 0.04% | |
| AUD | 0.37% | 0.07% | 0.08% | 0.21% | 0.31% | -0.25% | 0.29% | |
| NZD | 0.58% | 0.33% | 0.34% | 0.42% | 0.50% | 0.25% | 0.54% | |
| CHF | 0.03% | -0.22% | -0.21% | -0.05% | -0.04% | -0.29% | -0.54% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily digest market movers: EUR/USD advances on ECB’s hawkish tilt
- The New York Fed SCE revealed that inflation expectations for one year dropped from 3.6% to 3.2%, while those for a three-year horizon decreased from 3.2% to 3%. Lastly, for five years, it stood at 2.6%, down from 2.7% in the previous survey.
- Last Friday's solid US jobs report, along with expectations for an uptick in inflation data on Wednesday, suggest that the economy remains robust, warranting the Federal Reserve to hold rates unchanged.
- ECB officials reportedly expect rate cuts to be paused at the July meeting, according to Bloomberg. “Some officials see reductions in borrowing costs as maybe already finished, while others still back another move — probably in September, according to the people.”
- Financial market players do not expect that the ECB would reduce its Deposit Facility Rate by 25 basis points (bps) at the July monetary policy meeting.
Euro technical outlook: EUR/USD regains 1.1400 on muted session
EUR/USD uptrend remains intact as the pair has achieved successive series of higher highs and higher lows. Alongside this, the Relative Strength Index (RSI) is bullish. However, the pair must print a daily close above 1.14 for bulls to challenge higher prices. In that outcome, the pair’s next resistance would be the 1.1450 mark, followed by 1.15. Up next lies the 1.16 figure.
Conversely, if EUR/USD falls below 1.14, the next support level is June’s two-day low of 1.1344. A breach of the latter exposes the 20-day Simple Moving Average (SMA) at 1.1318, followed by 1.13 and the 50-day SMA at 1.1268.
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.
Author
Christian Borjon Valencia
FXStreet
Christian Borjon began his career as a retail trader in 2010, mainly focused on technical analysis and strategies around it. He started as a swing trader, as he used to work in another industry unrelated to the financial markets.
