EUR/USD fumbles again as trade deal hopes bolster Greenback bids

EUR/USD explored the low end once again on Thursday, testing 1.1200.
Greenback market flows are on the high side after a pending US-UK trade deal announcement.
The trade deal announcement has yet to be made official, but investors are hoping for further tariff walkbacks.

Joshua Gibson FXStreet

EUR/USD trimmed into the low end on Thursday, shedding a little over two-thirds of one percent from the day’s opening bids after US Dollar (USD) bids caught a broad-market boost following the tentative announcement of a pending trade deal between the United States (US) and the United Kingdom (UK). Europe still appears to be on the outs with the Trump administration, with White House officials continuing to warn the pan-EU continent to “not retaliate” against US import taxes.

The US-UK trade deal would allow the UK to evade high “reciprocal” tariffs that are set to reinstate on July 9, after President Trump temporarily postponed his own ‘Liberation Day’ tariffs. However, a broad 10% tariff remains planned for all imports from the UK into the US, which may dampen market sentiment soon. The Trump administration has fully suspended tariffs on significant imports like refined ethanol. Data indicates that the US has not imported refined ethanol from the UK for at least 15 years.

EUR/USD price forecast

EUR/USD has found an interim bottom just above the 1.1200 handle, but price action continues to struggle to gain a firm foothold on the 1.1300 region. Fiber has eased from multi-month highs posted just north of 1.1500, but downside momentum remains limited as Euro traders await key market developments before pushing too hard in either direction.

EUR/USD daily chart

Euro FAQs

What is the Euro?

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%).

What is the ECB and how does it impact the Euro?

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.

How does inflation data impact the value of the Euro?

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.

How does economic data influence the value of the Euro?

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.

How does the Trade Balance impact the Euro?

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

Joshua Gibson

FXStreet

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.

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