- EUR/USD turns sideways around 1.1350 as investors look for fresh cues on trade relations between the US and China.
- The ECB is expected to cut interest rates again in the June meeting.
- ECB’s Knot sees demand shocks and disinflation due to Trump’s tariffs in the near term.
EUR/USD trades in a very tight range around 1.1350 at the start of the week. The major currency pair consolidates on ambiguity over trade discussions between the United States (US) and China. Contradictory statements from Washington and Beijing over whether US President Donald Trump and Chinese President Xi Jinping have talked on trade terms have forced investors to stay on the sidelines.
President Trump has stated that trade discussions between Washington and Beijing are going well. However, China has denied these remarks, saying there have been no “economic and trade negotiations between China and the US”. On Friday, a spokesperson from the Chinese embassy said, “China and the US are not having any consultation or negotiation on tariffs,” Reuters reported.
After comments from Beijing, Trump stated in an interview with Time Magazine that China’s Xi Jinping had called him. “He’s called,” Trump said, and added, “I don’t think that’s a sign of weakness on his behalf.” Trump also clarified late Friday that Xi had called numerous times since he unveiled his tariff plan. “I don’t want to comment on that, but I’ve spoken to him numerous times,” Trump said to reporters, Reuters reported.
Meanwhile, US Treasury Scott Bessent has also not confirmed any trade talks between the presidents of the US and China. “I don’t know if President Trump has spoken with President Xi,” Bessent said, ABC reported.
During European trading hours on Monday, the US Dollar (USD) ticks higher, clinging to last week’s recovery move, which was driven by hopes of de-escalating the tariff war between the world’s two largest powerhouses. This week, the major trigger for the US Dollar will be a slew of US economic data, including the Nonfarm payrolls (NFP) on Friday.
Daily digest market movers: EUR/USD trades sideways ahead of busy Eurozone data week
- EUR/USD trades sideways as the Euro (EUR) trades cautiously ahead of the flash Harmonized Index of Consumer Prices (HICP) data of April and Q1 Gross Domestic Product (GDP) from the Eurozone and its major nations, which will be published this week. The inflation and economic growth data will significantly influence market expectations for the European Central Bank’s (ECB) monetary policy outlook.
- According to market expectations, the Eurozone headline HICP would return to the ECB target of 2%, the slowest growth in price pressures since October 2024. In March, the inflation data rose by 2.2%. The Eurozone GDP growth is estimated to have grown at a steady pace of 0.2% QoQ in the first quarter. Moderate inflation growth would increase traders’ confidence that the ECB would cut interest rates again in the June policy meeting.
- Meanwhile, Reuters reported on Saturday that ECB policymakers are becoming increasingly confident about cutting interest rates in June as inflation continues to fall. Still, there is little to no appetite for a big move. However, the report has not highlighted the names of ECB officials who have guided the chances of further monetary policy expansion.
- ECB policymaker and Dutch central bank governor Klaas Knot stated in an interview with Dutch financial daily FD over the weekend that the June monetary policy will be more “complex” as long-term inflation risks have skewed on “both sides”. Knot signaled caution that the tariff policy by the US could lead to a decline in demand and disinflation in the near term. “In the short term, it’s 100% clear that the demand shock will dominate, so inflation will go down,” Knot said.
- On the global front, the uncertainty over trade relations between the US and the Eurozone has also kept the Euro on the sidelines. European Union (EU) Economic Commissioner for Trade Valdis Dombrovskis has expressed concerns over having a deal with the US in the near term, while speaking with reporters on the sidelines of the International Monetary Fund (IMF) meetings in Washington, Reuters reported. “There’s a lot of work ahead to come to more concrete parameters and elements and areas of cooperation which would allow us to avoid the implementation of tariffs,” Dombrovskis said.
Technical Analysis: EUR/USD wobbles around 1.1350
EUR/USD trades back-and-forth around 1.1350 in Monday’s European session. The outlook of the major currency pair remains bullish as the 20-week Exponential Moving Average (EMA) is sloping higher around 1.0885.
The 14-week Relative Strength Index (RSI) climbs to near overbought levels above 70.00 in the weekly chart, which indicates a strong bullish momentum, but chances of some correction cannot be ruled out.
Looking up, the psychological level of 1.1500 will be the major resistance for the pair. Conversely, the July 2023 high of 1.1276 will be a key support 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.
