- The EUR/USD pair is experiencing slight downward pressure, hovering just above the 1.1400 mark, as the US Dollar finds stability. Market participants are keenly awaiting further developments regarding the trade relationship between the United States and China.
- US Treasury Secretary Scott Bessent has stated that the onus of making progress in US-China trade negotiations rests with Beijing.
- Several European Central Bank (ECB) officials have voiced their support for additional interest rate reductions to stimulate the Eurozone economy.
EUR/USD is trading lower, around the 1.1390 level, during Tuesday’s North American trading session. This decline in the major currency pair coincides with a period of stabilization for the US Dollar (USD), despite persistent uncertainties surrounding trade relations between the United States (US) and China. The Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, has edged higher to approximately 99.35.
Recent remarks from US Treasury Secretary Scott Bessent, suggesting that China should take the initiative in restarting trade discussions with the US, have amplified investor skepticism about the prospects of ongoing negotiations. “I believe that it’s up to China to de-escalate, because they sell five times more to us than we sell to them,” Bessent stated during an interview on CNBC’s Squawk Box on Monday, highlighting the trade imbalance between the two nations.
Adding to the uncertainty, conflicting statements emanating from US President Donald Trump and Beijing regarding a purported phone call between President Xi Jinping and Trump to discuss trade terms have further dampened hopes for a swift resolution to the ongoing US-China trade dispute.
President Trump has repeatedly asserted that China’s President Xi has contacted him on multiple occasions to discuss bilateral trade matters since the implementation of increased tariffs on Chinese goods. However, the Chinese Foreign Ministry has consistently denied that any such economic and trade discussions have taken place between the two leaders.
Beyond the commentary from the White House concerning US-China trade talks, a series of upcoming US economic data releases are expected to exert influence on the US Dollar’s movements throughout the week. Investors are particularly focused on the preliminary Q1 Gross Domestic Product (GDP) figures, the Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI), the ADP Employment Change report, and the crucial Nonfarm Payrolls (NFP) data for April. Furthermore, the Personal Consumption Expenditure (PCE) Price Index data for March will be closely scrutinized, as these indicators collectively shape market expectations regarding the Federal Reserve’s (Fed) future monetary policy decisions.
In Tuesday’s American trading session, the US JOLTS Job Openings data for March fell short of analysts’ forecasts. The number of job openings reported by US employers was 7.19 million, which was below the anticipated 7.5 million and also lower than the 7.48 million recorded in February, suggesting a potential cooling in the labor market.
Daily digest market movers: EUR/USD drops as US Dollar ticks higher
- The modest decline observed in the EUR/USD pair can also be attributed to a slight increase in selling pressure affecting the Euro (EUR). This pressure stems from recent comments made by European Central Bank (ECB) officials, who have expressed the need for further interest rate cuts to stimulate economic growth. On Monday, ECB policymaker and Governor of the Bank of Finland, Olli Rehn, publicly supported the implementation of additional monetary policy easing measures. He also voiced concerns regarding the increasing risk of Eurozone inflation falling below the central bank’s target of 2%, particularly in light of the potential impact of President Trump’s tariffs on the European economy.
- Governor Rehn did not dismiss the possibility of lowering interest rates below the neutral rate, which is the theoretical rate at which monetary policy is neither stimulative nor contractionary. “We must analyse all options with an open mind and not a priori rule out rate cuts below the neutral rate,” Rehn stated at a public event, according to a Reuters report.
- In a separate statement, ECB official and Governor of the Bank of France, François Villeroy de Galhau, also emphasized the necessity for further interest rate reductions. His comments were driven by concerns that President Trump’s tariff policies could potentially trigger an economic slowdown in the Eurozone. “We still have room to lower interest rates,” Villeroy de Galhau said, while also expressing confidence that inflation would eventually return to the 2% target in a radio interview on Monday, as reported by Reuters.
- Looking ahead, investors will be closely monitoring the Eurozone’s flash Q1 GDP data and the Harmonized Index of Consumer Prices (HICP) data for April to gain further insights into the ECB’s future monetary policy direction. These key economic indicators are scheduled for release on Wednesday and Friday, respectively.
- Recent economic data from Spain has revealed a weaker-than-expected GDP growth rate for the January-March period. The Spanish economy expanded by 0.6% in the first quarter, falling short of market expectations of 0.7% and the previous quarter’s growth rate of 0.8%. Conversely, Spain’s HICP data showed a steady year-on-year increase of 2.2% in April. On a month-over-month basis, the inflation rate rose at a moderate pace of 0.6%, compared to the 0.7% growth observed in March.
Technical Analysis: EUR/USD holds key 20-week EMA
EUR/USD is experiencing a slight decline, trading around the 1.1400 level during Tuesday’s North American trading session. The overall outlook for the major currency pair remains bullish, supported by the upward slope of the 20-week Exponential Moving Average (EMA), which is currently positioned around 1.0890.
The 14-week Relative Strength Index (RSI) has risen into overbought territory, exceeding the 70.00 level on the weekly chart. This indicates a strong upward momentum, suggesting that the pair may be poised for further gains. However, the overbought condition also implies that a potential price correction cannot be ruled out in the near term.
Looking ahead, the psychological level of 1.1500 is expected to act as a significant resistance level for the pair. Conversely, the July 2023 high of 1.1276 is likely to serve as a key support level for Euro bulls, potentially preventing further downside movement.
Economic Indicator
Harmonized Index of Consumer Prices (YoY)
The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.
