The euro is expected to weaken further as Trump’s new tariffs dampen risk appetite
- Euro depreciation is anticipated due to new tariffs from Trump affecting market confidence.
- Unexpected drops in unemployment may undermine the Fed’s hopes for imminent interest rate cuts.
- EUR/USD continues to drop, with bears eyeing a support level around 1.1660.
The EUR/USD pair has been sliding for the third consecutive day as of Friday. The risk appetite has diminished following President Trump’s announcement of a new set of tariffs affecting the European Union, which raises previous tariffs on various countries to 15% or 20% from 10%.
The Euro (EUR) has seen further declines against the stronger US dollar (USD) in the Risk Off session in Asia, currently trading around 1.1680 and hitting a low of 1.1665 earlier. This trend indicates the pair is struggling to recover following a previous peak on July 1st, with a weekly loss estimated at around 0.8%.
Once again, Trump has stirred the market. During a televised interview, he mentioned new tariffs directed at US trading partners, this time including the EU. His remarks raised concerns about the ongoing trade negotiations, although EU officials remain hopeful for positive outcomes before the August 1 deadline.
From a macroeconomic perspective, recent data from the US suggests a resilient labor market, as initial unemployment claims unexpectedly fell in the first week of June.
Looking at today’s calendar, it’s relatively light. There will be speeches from ECB officials Fabio Panetta and Piero Cipolón along with Germany’s current account figures in the morning. In the US, while there are WASDE Agricultural Reports and monthly budget statements due, they are not expected to cause significant volatility.
Daily Digest Market Movers: Strong Employment Data Offers Extra Support for USD
- The US dollar has continued to recover, bolstered by a drop in weekly unemployment claims to seven-week lows. The initial claims fell to 227,000, compared to an expected increase from forecasts that projected a rise to 233,000.
- This billing data diminishes the likelihood of the Fed cutting rates soon, leading to a modest uptick in US Treasury yields and an increase in the dollar’s value. The CME Watch Tool indicates that the chance of a rate cut in July is now below 5%, with at least a 25 basis point reduction in September anticipated at just 6%, down from 72% a day prior.
- Later on Thursday, Fed Governor Christopher Waller reiterated that the current monetary policy is overly tight, advocating for cuts in July.
- San Francisco Fed President Mary Daly also noted that tariff impacts on consumer prices are expected and predicted two interest rate cuts by year-end.
- Conversely, St. Louis Fed President Alberto Musalem expressed caution, stating it’s premature to decide if tariff impacts are a temporary boost or enduring changes, highlighting differences within the central bank’s policy committee.
- In the Eurozone on Friday, ECB official Isabel Schnabel stated that further interest rate cuts are off the table and mentioned that economic growth risks are balanced, assuming inflation trends remain stable.
- Earlier, France’s Consumer Price Index (CPI) data confirmed a 0.4% monthly inflation increase in June, adjusting the annual rate to 0.9% from a previous estimate of 0.8%.
- In Germany, data released by Destatis showed that preliminary figures confirm stable monthly inflation while easing consumer inflation to meet the ECB’s 2% annual target in June.
EUR/USD continues to decline within its downward trend
The EUR/USD pair, after reaching a peak of 1.1830 on July 1, is now trading in a series of lower highs and lows following a bearish correction. The price action has been held steady around a support level between the lows of Thursday at 1.1660 and 1.1650.
The 4-hour relative strength index (RSI 14) is notably below the 50 mark and is further away from the oversold territory. Should this continue, support might be found in the area around 1.1640-1.1630. The Fibonacci retracement from the late June rally reflects this concern, holding at high levels from mid-June.
The range between today’s high of 1.1710 and the channel resistance at 1.1740, alongside the high of 1.1750, might hinder upward movements temporarily.
