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EUR/USD surges higher as tariff walk-back eases tensions further

  • EUR/USD surged over 2.5% on Thursday, hitting a 21-month high.
  • The Trump administration’s cyclical tariff strategy has eased market tensions for now.
  • Key US sentiment figures remain on the docket to round out the trading week.

EUR/USD roared into its highest bids in nearly two years on Thursday, breaching and closing above the 1.1200 handle for the first time in 21 months. Market tensions continue to ease following the Trump administration’s last-minute pivot away from its own tariffs, sparking a general softening in US Dollar flows.

In March, US Consumer Price Index (CPI) inflation significantly fell short of projections. Core CPI decreased to 2.8% year-over-year, marking a four-year low after remaining above 3.0% for almost eight months. Headline CPI inflation also dropped to 2.4% year-over-year. Investment markets would face severe challenges if tariffs reverse the Federal Reserve's (Fed) years of efforts to control inflation.

The week will conclude with the University of Michigan (UoM) Consumer Sentiment Index survey results on Friday. The UoM Consumer Sentiment Index is anticipated to decline once more in April, as consumers struggle under the pressure of the Trump administration’s tariff and trade policies, likely falling to a nearly three-year low of 54.5. Additionally, Consumer Inflation Expectations will be released on Friday, with UoM 1-year and 5-year Consumer Inflation Expectations previously recorded at 5% and 4.1%, respectively.

EUR/USD price forecast

A sharp increase in bullish momentum pushing Fiber bids higher has left price action strung out in no man’s land. 1.1200 remains a tricky level for Euro bidders to overcome, and intraday traders could be on the lookout for signs of fresh technical weakness to drag the pair back down.

Technical oscillators are flashing firm warning signs of overbought conditions, and bidders will have an increasingly difficult time keeping bids on the high side of the 200-day Exponential Moving Average (EMA) near 1.0885.

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.

Author

Joshua Gibson

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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