EUR/USD rises despite trade war risks as markets pivot to US CPI inflation data
- EUR/USD rose 80 pips, or 0.76%, on Tuesday.
- Fiber markets have evaded the worst of the US’s ongoing tariff spat.
- Key US data dominates the rest of the week’s calendar releases.
EUR/USD bidders found the gas pedal on Tuesday, bolstering Fiber further and sending the pair back into the 1.0950 level, albeit briefly. The pair tested into fresh 22-week highs as Euro bulls continue to press further into recovery territory.
US data remains the focal point for fx traders this week. This week, EU economic data is notably sparse; however, significant US data releases are scheduled back-to-back for most of the week. The US JOLTS job openings data was a bit stronger than anticipated, offering some stability to shaken markets. Job postings rose to 7.74M in January, exceeding the forecast of 7.63M and up from December’s revised figure of 7.51M, adjusted down from 7.6M.
On Wednesday, the US Consumer Price Index (CPI) inflation data for February takes center stage. Following an unexpected rise in consumer-level inflation in January, which dashed hopes for a swift return to rate cuts by the Federal Reserve (Fed) in 2025, markets are largely anticipating a lower February figure. Headline CPI inflation is projected to decrease to 2.9%, down from 3.0% year-over-year.
The US Producer Price Index (PPI) inflation report is expected on Thursday. While there's hope for a lessening inflation trend in consumer prices, business-level inflation is likely to remain persistently high, with core PPI inflation expected to maintain a steady rate of 3.6% year-over-year.
Friday will conclude with the University of Michigan Consumer Sentiment Index for March, along with the UoM’s Consumer Inflation Expectations. The UoM sentiment index is predicted to decline slightly to 63.4 from 64.7, reflecting a weakening economic outlook amid Donald Trump’s efforts to ignite a global trade war simultaneously with multiple countries.
EUR/USD price forecast
EUR/USD has closed flat or higher for all but one of the last six consecutive trading session, rising 5.5% in the process. Fiber has climbed nearly 7.6% bottom-to-top from the last major swing low near 1.0175, with bulls easily snapping the 200-day Exponential Moving Average (EMA) in the process.
EUR/USD is now running aground of technical resistance just north of the 1.0900 handle, a technical region that flummoxed Euro bulls the last time around back in October and November of last year.
EUR/USD daily chart
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.
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