- The euro is expected to dip from its two-week peak against the US dollar due to rising concerns about the EU-US trade deal.
- The US dollar is likely to see a slight increase as President Trump announces a significant trade agreement with Japan.
- The immediate outlook for EUR/USD remains positive, though any downside movements appear limited beyond prior highs.
On Wednesday, the EUR/USD pair dropped slightly, booking some profits after a 1.3% increase over the last three days. Investor worries regarding stalled trade discussions between the US and EU, along with a somewhat robust US dollar, placed the euro under pressure.
The euro fell from its recent high of 1.1760 on Tuesday, trading around 1.1730 during the early European session on Wednesday. Still, the trend appears favorable after recovering from a recent low of 1.1555 last week and breaking through resistance at 1.1720.
With the announcement of a trade deal between the US and Japan, market sentiment has improved, yet this has not boosted the euro. Ongoing uncertainty regarding EU-US trade negotiations gives investors an edge. EU officials are heading to Washington to push for a deal, but the Bloc is also contemplating countermeasures should talks fail.
On the economic front, the Reserve European Commission (EC) Consumer Sentiment Index for July is due at 2:00 GMT and is the key release for the day. Moreover, the spotlight remains on the European Central Bank (ECB) monetary policy announcement on Thursday, which will shed light on the bank’s near-term strategies and the broader eurozone economic outlook.
Daily Digest Market Movers: Euro Recovery Stalls Amid Trade Concerns
- The euro has struggled to prolong its rally for a fourth day, largely due to heightened uncertainty surrounding EU-US trade relations and the looming possibility of a 30% tariff effective August 1, dampening speculative interest in the currency.
- Furthermore, traders might be reducing their long positions on the euro as we approach the ECB’s monetary policy decisions. Analysts expect the bank to keep interest rates steady as inflation remains around 2%, yet some lagging economic indicators in key regions and the potential for a trade conflict with the US could raise expectations for further easing in September.
- On the same day, the preliminary EC consumer sentiment index is anticipated to show a slight improvement, shifting from -15.3 in the previous month to -15 for July. However, these results fall well short of long-term averages, indicating a weak economic backdrop. Unless a positive surprise occurs, this data is unlikely to lend much support to the euro.
- Earlier on Wednesday, US President Trump revealed a “large trade agreement” with Japan, which includes lowering tariffs on imports from Asian nations to 15% from a previously announced 25%. Trump emphasized that Japan is set to invest $550 billion into the US. Following this news, the dollar gained strength.
EUR/USD Retains Positive Bias Above 1.1720
The EUR/USD has adjusted its four-hour relative strength index (RSI) to reflect an oversold condition following substantial activity over the past three days. Nonetheless, it retains a generally bullish outlook, having surpassed earlier resistance and finding support at 1.1720.
If it declines further past this level (the high recorded on Monday, July 16), the next notable point is around 1.1645, with Tuesday’s low at 1.1680 suggesting a nearby support level. The high point of 1.1760 from Tuesday capped further upside, while the target of July 1 at 1.1790 remains elevated, with hopes for a breakout beyond 1.1830.
