EUR/USD trims losses but still sheds weight

EUR/USD dropped after markets weighed sweeping US tariffs.
Markets recovered ground after 30-day tariff extensions on Mexico and Canada.
Fiber remains bearish after Trump teased tariffs on EU.

Joshua Gibson FXStreet

EUR/USD dropped sharply following fresh tariff threats from US President Donald Trump, impacting the markets. However, significant declines in global risk markets eased as the Trump administration offered 30-day concessions on impending tariffs for Canada and Mexico. The likelihood of US tariffs specifically targeting the EU remain on the table, but details from President Trump remain thin.

Markets went full-circle to kick off the new trading week, with risk appetite plummeting after the US looked set to impose sweeping tariffs on some of its closest allies on Tuesday. A last minute stay of imposing stiff import fees on the US’ own constituents helped alleviate bearish pressure underpinning markets for the time being, and investor sentiment has recovered roughly to where it started.

European economic data remains this this week, though pan-EU Retail Sales are expected to jump back to 2.0% on Thursday. Another US Nonfarm Payrolls (NFP) print also looms ahead on Friday. Jobs figures are unlikely to move the needle too much this week. The US labor segment remains sturdy, and geopolitical headlines are taking the front seat this week.

EUR/USD price forecast

Despite an intraday bullish recovery, the Euro still chalked in a sixth consecutive session of declines against the Greenback, sending EUR/USD within a stone’s throw of the 1.0200 handle. Bids recovered back above 1.0300, but the pair still remains firmly planted in bear country south of the 50-day Exponential Moving Average (EMA) near 1.0450.

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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