- The EUR/USD increased on Tuesday but remains limited by the 1.1300 level.
- While there has been a slight recovery, the euro has dipped from its recent peak against the dollar.
- Key US PMI figures will be released this week and are crucial for the market.
The EUR/USD saw its second consecutive day of gains on Tuesday, edging closer to the 1.1300 mark. Even though there have been recent upticks suggesting bullish momentum, the pair is still quite a distance from its recent multi-year high near 1.1575. It appears to be finding solid technical support near the main moving averages, and market sentiment seems to be leaning towards finding reasons to buy.
Tariffs shape market views, upcoming US data weighs in
European leaders are currently engaged in the G7 conference, which has resulted in fewer notable headlines from major EU figures. Overall market sentiment seems largely driven by trade news from the US, with hopes that tangible deals will be made with the Trump administration. The situation is somewhat precarious, as there is a feeling that tariffs may be looming over the economy. As the Trump administration nears its own 90-day deadline related to a “mutual tariff” plan, various trade discussions have been announced, albeit without any substantial outcomes.
Wednesday appears to offer a lighter data schedule, featuring only mid-tier information from both sides of the Pacific. The US Purchase Manager Index (PMI) figures are anticipated to be mixed, with the manufacturing PMI expected to slide from 50.2 to 50.1 in May, while the services component is projected to remain steady at 50.8.
EUR/USD price outlook
The euro gained about 4/4 percent against the dollar on Tuesday, bringing EUR/USD closer to the 1.1300 threshold. While the pair is currently holding steady, it has begun bouncing off the 50-day exponential moving average below 1.1100. However, there’s still a considerable distance to cover to reach the 1.1500 level seen in April.
EUR/USD Daily Chart
Euro FAQ
The euro is the currency used by 19 EU countries in the eurozone, and it’s the second most traded currency globally after the US dollar. In 2022, it represented 31% of all forex trading, with a daily turnover exceeding $2.2 trillion. The EUR/USD pair is the most traded in the world, making up an estimated 30% of all forex transactions, followed by pairs like EUR/JPY, EUR/GBP, and EUR/AUD.
The European Central Bank (ECB), located in Frankfurt, is responsible for managing the eurozone’s monetary policy and setting interest rates. Its primary goal is to maintain price stability, either by controlling inflation or stimulating growth. The ECB’s decisions are made during eight meetings each year and involve six permanent members, including the ECB president, Christine Lagarde.
Eurozone inflation is measured by the Harmonized Index of Consumer Prices (HICP), a key economic indicator for the euro. If inflation rises unexpectedly, the ECB may need to increase interest rates to regain control, especially if it exceeds the 2% target. Higher interest rates typically make the euro more attractive to global investors.
Data on economic health affects the euro significantly. Indicators like GDP, Manufacturing and Services PMIs, Employment, and Consumer Sentiment Survey can sway currency directions. A robust economy often attracts foreign investment, which could prompt the ECB to raise interest rates, strengthening the euro. Conversely, weak economic data could lead to a decline in its value.
Trade balance data is another critical metric for the euro. It reflects the difference between a country’s exports and imports. A positive trade balance can strengthen a currency by boosting demand from foreign buyers, while a negative balance could have the opposite effect.
