EUR/USD rebounds from the two-week low as European leaders, including Zelenskyy, show readiness to end the war in Ukraine.
US President Trump’s tariffs on Canada and Mexico could be lower than 25%.
Investors await the US Manufacturing PMI data for February, releasing on Monday.
EUR/USD recovers above 1.0400 at the start of the week. The major currency pair rises as the Euro (EUR) outperforms across the board after European leaders, including Ukrainian President Volodymyr Zelenskyy, agreed to prepare a Ukraine peace plan at a high-stakes summit in London over the weekend, along with United Kingdom (UK) Prime Minister Keir Starmer.
Starmer said leaders from France, Ukraine, and other allied nations are ready to outline a structured peace plan to be presented to the US to secure Washington’s security guarantees for Kyiv.
Market participants see the willingness of European leaders to end the war in Ukraine as favorable for the Euro, assuming that a truce between Russia and Ukraine will restore the Eurozone’s supply chain mechanism.
This week, the major highlight for the Euro will be the European Central Bank (ECB) monetary policy meeting, scheduled for Thursday. The ECB is almost certain to cut its Deposit Facility Rate by 25 basis points (bps) to 2.5%. This would be the fifth straight interest rate cut by the ECB. Traders have been increasingly confident about the ECB reducing its borrowing rates again amid fears that US President Donald Trump’s tariff agenda will damage the economic growth of the shared continent. Such a scenario would keep Eurozone inflationary pressures persistently below the ECB’s target of 2%.
Meanwhile, the Eurozone Harmonized Index of Consumer Prices (HICP) inflation data slowed in February. As measured by the HICP, headline inflation grew by 2.4%, faster than estimates of 2.3% but slower than the 2.5% increase seen in January. In the same period, the core HICP - which excludes volatile item prices - decelerated to 2.6%, as expected, from the prior release of 2.7%. Month-on-month, headline, and core HICP rose by 0.5% and 0.6%, respectively.
Daily digest market movers: EUR/USD moves higher as US Dollar corrects
The recovery in the EUR/USD pair from its over-two-week low of 1.0360 is also driven by some correction in the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, declines to near 107.30 from its two-week high of 107.65 posted on Friday. The Greenback faces pressure as fears of heavy tariffs by US President Donald Trump on Canada and Mexico have diminished.
Over the weekend, US Commerce Secretary Howard Lutnick confirmed that tariffs on his North American allies are on their way but was unsure whether they would be 25% or less, as President Trump stated on Thursday.
Lutnick said to Fox News that there are going to be “tariffs on Mexico and Canada on Tuesday”. When asked about the tariff plan details, Lutnick said that they are going to leave that for the “President and his team to negotiate”. Lutnick’s comments diminished investors’ fears that Trump’s tariffs wouldn’t be as fearful as they had anticipated from his tweet on Truth Social, in which President Trump said that he is ready to impose 25% tariffs on Canada and Mexico and an additional 10% on China as drugs are still pouring into the economy through borders.
On the monetary policy front, the likelihood of the Federal Reserve (Fed) cutting interest rates in the June policy meeting has increased after a decline in Personal Spending data for January. This was the first decline in the consumer spending data since March 2023. There is a 77% chance that the Fed will cut its borrowing rates in June, up from 63% a week ago, according to the CME FedWatch tool.
This week, investors will focus on a slew of US economic data, including Nonfarm Payrolls (NFP), which will influence market expectations for the Fed’s monetary policy outlook. In Monday’s session, investors will focus on the US ISM and revised S&P Global Manufacturing Purchasing Managers Index (PMI) data for February, which will be published during North American trading hours.
Technical Analysis: EUR/USD bounces back above 1.0400
EUR/USD rebounds from an over two-week low of 1.0360 and trades above 1.0400 in Monday’s European session. However, the near-term outlook of the major currency pair remains bearish as it trades below the 20-day Exponential Moving Average (EMA), which is around 1.0430.
The 14-day Relative Strength Index (RSI) declines toward 40.00. A bearish momentum would activate if the RSI falls below that level.
Looking down, the February 10 low of 1.0285 will act as the major support zone for the pair. Conversely, the February 24 high of 1.0530 will be the key barrier for the Euro bulls.
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