Market Data 
- EUR/USD climbs above 1.0440 as market sentiment turns favorable for risky assets, with Russia and Ukraine agreeing to start peace negotiations.
- Investors brace for high uncertainty as US Trump is poised to impose reciprocal tariffs.
- The Federal Reserve is expected to keep interest rates steady for longer.
EUR/USD jumps to near 1.0440 in Thursday’s European trading session. The major currency pair strengthens as investors’ risk appetite has increased significantly due to the constructive development of the Russia-Ukraine conflict since both countries agreed to begin peace talks.
Market sentiment turned cheerful after United States (US) President Donald Trump confirmed that he had a “lengthy and highly productive” conversation with Russian leader Vladimir Putin, who agreed to start peace negotiations with Ukraine.
US Defense Secretary Pete Hegseth stated on Wednesday that Ukraine should stop seeking membership into the NATO alliance and reconsider its goals of reclaiming territory seized by Russia.
A constructive attempt by US President Trump to end the three-year-long bloodshed has strengthened the appeal of risk-sensitive assets, such as the Euro (EUR). The Russia-Ukraine truce would help fix the Eurozone energy crisis and the global supply chain. Such a scenario will be favorable for the Euro.
Still, investors doubt that the Euro is unlikely to hold onto its recovery move due to weak Eurozone economic performance and firm expectations that the European Central Bank (ECB) will extend the monetary easing cycle as inflationary pressures are on track to return sustainably to 2% target by the year.
Daily digest market movers: EUR/USD moves higher while investors question Euro’s strength
- Market participants worry that the Euro’s recovery could fizzle out as US President Donald Trump is expected to announce reciprocal tariffs before meeting with Indian Prime Minister Narendra Modi on Thursday, CNBC reported.
- Trump is expected to increase the tariffs on imports of European vehicles to 10% from the current 2.5% levy. The US is the second-largest market for the European Union (EU) automobile exports after the United Kingdom (UK). Over 20% of total EU auto exports were taken by the US in 2023, according to ACEA.
- The impact of reciprocal tariffs will be negative for the Eurozone economy and would lead to a trade war between Europe and the US. European Commission President Ursula von der Leyen warned on Tuesday that the EU would act to “safeguard its economic interests” and is ready for “proportionate countermeasures.” Her comments came after Trump imposed 25% tariffs on all imports of steel and aluminum and said these tariffs “will not go unanswered”.
- Meanwhile, the US Dollar (USD) has faced a sharp sell-off after positive headlines on Russia-Ukraine truce talks as investors showed back to safe-haven assets. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declined to 107.50.
- However, the outlook for the US Dollar remains firm as the hotter-than-expected Consumer Price Index (CPI) report for January has provided enough justification to Federal Reserve (Fed) officials to hold interest rates in the current range of 4.25%-4.50% for a longer period.
- Analysts at Macquarie have reinforced their call that the Fed will remain on “long hold in 2025” and no change in the fed funds rate on “January’s hot CPI report.” They initially guided their long-hold call after the release of the strong employment report for January, which was released on February 7.
Technical Analysis: EUR/USD struggles to extend upside above 50-day EMA
EUR/USD extends its winning streak for the third trading day on Thursday. The major currency pair climbs above 1.0400 but continues to face pressure near the 50-day Exponential Moving Average (EMA) around 1.0424.
The 14-day Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, indicating a sideways trend.
Looking down, the January 13 low of 1.0177 and the round-level support of 1.0100 will act as major support zones for the pair. Conversely, the psychological resistance of 1.0500 will be the key barrier for the Euro bulls.
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.
