Market Data 
- EUR/USD climbs to near 1.0480 amid cheerful market sentiment due to multiple factors.
- US President Trump’s reciprocal tariffs are unlikely to be executed before April 1.
- The ECB is expected to cut interest rates further, while the Fed is anticipated to maintain a restrictive stance.
EUR/USD extends its winning streak for the fourth trading session on Friday. The major currency pair posts a fresh fortnight high around 1.0480 and aims to extend its upside to near the psychological resistance of 1.0500. The shared currency pair gains as demand for risk-perceived assets has increased due to multiple tailwinds.
Market sentiment becomes favorable for risky assets as the imposition of reciprocal tariffs by United States (US) President Donald Trump is unlikely to come into effect before April 1. On Thursday, Trump asked treasury and commerce chiefs to work on reciprocity. Later, Commerce Secretary nominee Howard Lutnick said the president would be ready to move on new tariffs by April 1. This scenario diminished fears of an immediate global trade war as investors anticipated that Trump would announce reciprocal levies on Thursday itself.
Investors expect US trading partners would get enough time to negotiate on potential tariffs with Trump, which will ease the scope of negative outcomes of the trade war.
Apart from the delay in reciprocal tariff imposition, optimism over the Russia-Ukraine truce has also offered a big relief to the Euro (EUR). An end to a three-year-long conflict would fix the energy crisis and supply chain bottlenecks in the Eurozone to a great extent.
In spite of multiple tailwinds behind Euro’s strength, market participants worry that expectations of widening rate differentials between the European Central Bank (ECB) and the Federal Reserve (Fed) could push the shared currency on the backfoot again.
A slew of ECB officials have been comfortable with expectations that the central bank will reduce its Deposit Facility rate three times more this year. The ECB cut its interest rates by 25 basis points (bps) to 2.75% last month.
On Thursday, ECB policymaker and Croatian central bank Governor Boris Vujčić said that the market pricing in three more interest rate cuts this year is something “not unreasonable”. Vujčić added that the ECB could remove the reference to “restrictive policy” in the March policy statement.
Daily digest market movers: EUR/USD gains at USD expense
- EUR/USD is also up by weakness in the US Dollar (USD). The safe-haven demand for the USD has diminished amid a delay in the imposition of Trump’s reciprocal tariffs and hopes of peace between Russia and Ukraine. The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, posts a fresh almost four-week low below 107.00.
- Still, the outlook for the US Dollar has not turned bearish as traders expect the Federal Reserve (Fed) to keep interest rates steady in the range of 4.25%-4.50% for a longer period. According to the CME FedWatch tool, the Fed is expected to keep interest rates steady in the next three policy meetings. There is an almost 50% chance that the Fed can cut interest rates in the July meeting.
- Traders are confident that the Fed will maintain a restrictive interest rate stance for longer amid persistent inflationary pressures and strong labor demand.
- This week, Fed Chair Jerome Powell said in his two-day testimony before Congress that the central bank can maintain “policy restraint for longer” if the economy remains strong and “inflation does not move toward 2%.”
- In Friday’s session, investors will focus on the US Retail Sales data for January, which will be published at 13:30 GMT. The US Census Bureau is expected to report that Retail Sales, a key measure of consumer spending, declined by 0.1% in January after expanding 0.4% in December.
Technical Analysis: EUR/USD recovers to near 1.0480
EUR/USD extends its recovery to near 1.0480 in European trading hours on Friday. The major currency pair strengthens after climbing above the 50-day Exponential Moving Average (EMA), which trades around 1.04282.
The 14-day Relative Strength Index (RSI) advances to near 60.00. A bullish momentum would activate if the RSI (14) manages to sustain above that level.
Looking down, the February 10 low of 1.0285 will act as the major support zone for the pair. Conversely, the January 27 high of 1.0533 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.
