EUR/USD rallies higher on risk appetite, positive ECB survey
- The ECB shows optimism about the economic outlook, but with tariff uncertainty looming.
- Trump escalated tensions with the EU, lifting the tariff baseline to 15%-20%.
- Technically, the EUR/USD remains within the bearish channel, with key resistance at 1.1655-1.1665.
The EUR/USD pair is accelerating its recovery ahead of the US session opening on Monday as the US Dollar extends losses alongside falling US Treasury yields. A European Central Bank, (ECB) survey on finance observes an optimistic view on the economy among European businesses but warns about trade uncertainty.
The Euro trades around 1.1665 at the time of writing, right where the descending trendline resistance from July 1 converges with last Friday's high at the 1.6670 area. A confirmation above those levels would signal a trend shift.
In the absence of relevant macroeconomic releases on Monday, the risk sentiment is driving the Euro higher and weighing on the US Dollar. US Treasury yields are accelerating their reversal from last week's highs, with the yield of the benchmark 10-year note retreating to 10-day lows below 4.40, increasing negative pressure on the USD.
Tariff uncertainty, however, is keeping Euro bulls on the leash. Negotiations between Washington and the European Union (EU) have been underway for several weeks already, with no news to report so far. The US Commerce Secretary, Howard Lutnick, affirmed on Sunday that he is confident of reaching a deal. However, US President Trump warned that the August 1 deadline is firm, and the EU is already preparing retaliatory measures in case the talks end without an agreement.
The highlight of the week will be the European Central Bank's (ECB) monetary policy decision due on Thursday. The bank will most likely leave interest rates unchanged, but President Lagarde's comments on the economic outlook and the potential impact of tariffs will determine the Euro's near-term direction.
In the US, investors will keep an eye on corporate earnings. Tech megacaps Alphabet (GOOG) and Tesla (TSLA) will release their respective reports later this week, together with other firms like Lockheed Martin (LMT) and General Dynamics (GD), which might show increasing revenues boosted by higher defence spending.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.30% | -0.43% | -0.32% | -0.07% | -0.09% | 0.05% | -0.26% | |
| EUR | 0.30% | -0.06% | -0.02% | 0.21% | 0.16% | 0.16% | -0.00% | |
| GBP | 0.43% | 0.06% | -0.16% | 0.31% | 0.25% | 0.44% | 0.25% | |
| JPY | 0.32% | 0.02% | 0.16% | 0.24% | 0.26% | 0.30% | 0.22% | |
| CAD | 0.07% | -0.21% | -0.31% | -0.24% | 0.04% | 0.13% | -0.23% | |
| AUD | 0.09% | -0.16% | -0.25% | -0.26% | -0.04% | 0.07% | -0.03% | |
| NZD | -0.05% | -0.16% | -0.44% | -0.30% | -0.13% | -0.07% | -0.19% | |
| CHF | 0.26% | 0.00% | -0.25% | -0.22% | 0.23% | 0.03% | 0.19% |
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: Tariff concerns likely to weigh on the Euro
- Euro rallies are likely to remain limited this week, unless the EU negotiators announce a trade deal with the US. President Trump escalated tensions with the bloc, pushing for a minimum 15% to 20% tariff baseline, while the European Union (EU) is studying answering with tariffs higher than 10% on US products, even if a deal is struck.
- On the other hand, investors remain concerned that the impact of tariffs on the US economy might be akin to that of the Smoot-Hawley Act of 1930, which led to the Great Depression. The US Dollar has been trading higher over the last weeks, but it might start losing ground as the August 1 deadline approaches.
- The Wall Street Journal reported earlier on Monday that the US Treasury Secretary, Scott Bessent, urged President Trump to avoid ousting the chairman of the Federal Reserve (Fed), Jerome Powell, as it would create unnecessary turmoil and damage the economy.
- On Friday, the US Michigan Consumer Sentiment Index improved to 61.8 from 60.7 in the previous month, and slightly above the 61.5 forecasted by the analysts. These figures come in line with the strong employment and consumption data seen previously on the week, which contributed to supporting the US Dollar's recovery last week. Consumers' inflation expectations, also measured by the Michigan survey, declined significantly.
EUR/USD is piercing trendline resistance at 1.1665
EUR/USD extends Friday's gains on Monday, and is testing a key resistance area where the top of the descending channel from July 1 highs meets the July 18 high, at 1.1670. Technical indicators are pointing higher, with the 4-hour Relative Strength Index (RSI) advancing above 50.
The pair, however, is likely to meet significant resistance at current levels. A successful move above this area would confirm a trend shift, increasing bullish pressure towards the July 14 and 15 highs right below 1.1700 ahead of the July 10 high, at 1.1735.
On the downside, immediate support is at the 1.1615 intra-day low, ahead of the July 17 low at 1.1555 and the 78.6% Fibonacci retracement of the late June bullish run at 1.1535.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
