The Euro Gains Strength Thanks to ECB Survey and Weaker US Dollar
- The Euro appreciates further due to a favorable ECB loan survey and a declining US dollar.
- Concerns over Trump’s tariffs contribute to a loss of momentum for the US dollar.
- Federal Reserve Chairman Jerome Powell is set to speak on Tuesday as pressure mounts from President Trump for him to resign.
The EUR/USD pair saw the US dollar making slight gains early on Tuesday, but it continues to weaken as trade uncertainties loom. Conversely, a rather positive loan survey from the European Central Bank (ECB) earlier in the day has lent support to the common currency.
The Euro (EUR) has shown positive movement throughout the day, rising above the 1.1700 threshold. The pair has also surpassed the top of the bearish channel since hitting a high of 1.1675 last Friday and reaching a high from July 1, indicating a potentially favorable outlook.
According to the ECB survey, trade tensions haven’t affected credit standards, and there’s been a rise in both mortgage and business credit demand during the second quarter, with expected growth in the next three months. These observations follow another optimistic report regarding finance access released on Monday.
While these reports have pushed the Euro to near 10-day highs, underlying trade uncertainty dampens sentiment. Investor appetite for risk appears weak, especially with the August 1 tariff deadline approaching and negotiations making little headway.
Negotiations between EU and US representatives continue in hopes of reaching an agreement, but enthusiasm appears to be waning. Recent European comments suggest diminished confidence, with discussions of possible retaliatory measures against US services in reaction to President Trump’s sweeping tariffs.
Later today, attention will funnel to Federal Reserve Chairman Jerome Powell’s speech in Washington. Although he’s not anticipated to address monetary policy during this blackout period before the July 30 rate decision, how he responds to the substantial pressure from the US administration could impact markets.
Daily Market Overview: Weakness in US Dollar Amid Trade Issues
- The US dollar seems to have lost the bullish momentum from recent weeks. While the greenback is slightly up on Tuesday, the last two days’ reversals indicate growing market concerns over upcoming tariffs as the August 1 deadline nears.
- With no significant macroeconomic data on the horizon, the ongoing criticism of Fed Chairman Powell by the US administration is likely to draw investor attention, further undermining the Fed’s credibility and the dollar’s status as a reserve currency.
- In the eurozone, the recent ECB survey indicated that European firms maintain a positive growth outlook but are cautious about the potential repercussions of trade conflicts. This has fueled recent support for the Euro.
- Investors will also keep an eye on the quarterly earnings from major tech companies like Alphabet and Tesla, while SAP’s results in Europe may shed light on how the strong Euro could influence European firms’ revenues.
EUR/USD Surpasses Trendline Resistance, Eyes 1.1720
The EUR/USD is displaying bullish momentum after breaking through the downtrend channel established since the highs on July 1. The pair is showing minor dips today, yet technical indicators, such as the four-hour relative strength index and MACD, remain in bullish territory.
Immediate resistance is set at 1.1720, which follows Monday’s close just shy of the July 10 high of 1.1750 and the early July high of 1.1790.
On the downside, support might be found at 1.1675, aligning with the July 18 high. However, a potential retest of the 1.1655 trendline shouldn’t be dismissed. If prices fall below that, the optimistic outlook could shift focus to Monday’s low at 1.1620.
ECB Overview
The European Central Bank (ECB), located in Frankfurt, Germany, serves as the central bank for the eurozone. Its main role is setting interest rates and overseeing regional monetary policy, with a primary focus on maintaining price stability, generally targeting an inflation rate around 2%. Adjustments in interest rates typically correlate with the Euro’s strength.
In extreme situations, the ECB can implement quantitative easing (QE), a strategy to inject liquidity by purchasing assets like government bonds to combat declining inflation. While useful, QE can also lead to a weaker Euro.
Conversely, quantitative tightening (QT) occurs following QE when economic recovery is underway. In this phase, bond purchases stop, which generally has a positive effect on the Euro.
