- EUR/USD falls due to hard line expectations of the Fed and increased yields.
- The US dollar bounces as the demand for safe refuge for the dollar increases before the deadline of tariffs on Wednesday.
- EUR/USD support as the bullish impulse fades.
The euro (EUR) is falling against the US dollar (USD) at the beginning of the American session, with the EUR/USD testing 1,7360 at the time of writing.
Euro pressed while the US dollar is strengthened by hard line expectations of the Fed and increased yields
The weakness of the euro on Monday is mainly due to the renewed strength of the US dollar and a readjustment of the market in the expectations of interest rates. According to the CME Fedwatch tool, markets are valuing a 4.7% probability of a 25 basic points rate cut in July, compared to 20.7% of last week. The probability of a rate cut in September is 64.5%, compared to 75.4% of last week. This follows the US Non -Agricultural Payroll (NFP) report on Thursday, which was better than expected.
As a key objective of the US monetary policy, solid figures have decreased the perspectives that the Federal Reserve (FED) cut interest rates in the short term.
The yield differential between Europe and the US continues to favor the dollar, even more undermining the upward potential of the euro.
Increased demand for safe refuge for the US dollar before the deadline of tariffs on Wednesday
On the commercial front, US Treasury Secretary told CNBC on Monday that the Trump administration expects to announce additional commercial agreements before Wednesday.
Speaking at Morristown airport on Sunday, US President Trump declared, “I think we will have most countries ready for July 9, be it a letter or an agreement,” referring to the new tariffs that will be imposed to 12–15 countries.
With letters that detail the charges due on Monday and reciprocal tariffs that are expected to enter into force for August 1, the markets are prepared for increased commercial tensions, supporting the demand for safe refuge for the US dollar.
EUR/USD SUPPORT Try as the bullish impulse fades
The EUR/USD price action has been withdrawn near the simple mobile average (SMA) of 10 days in 1,1736, with psychological support seen near the level of 1,1700. A rupture below the fibonacci setback of 23.6% of the recovery of May-Julio in 1,1647 could deepen the correction towards the 20-day SMA in 1,1626. Despite the recent fall, the relative force index (RSI) remains elevated in 64, which indicates that the broader upward trend remains intact, for now, despite the fact that the bullish impulse fades.
EUR/USD daily graphics
A recovery of the EUR/USD above 1,1800 would probably rekindle the upward interest, preparing the stage for a test of the recent maximum of the cycle above 1,1830. A sustained rupture above this resistance could open the door to the psychological level of 1,1900.
EURO – FREQUENT QUESTIONS
The euro is the currency of the 19 countries of the European Union that belong to the Eurozone. It is the second most negotiated currency in the world, behind the US dollar. In 2022, it represented 31 % of all foreign exchange transactions, with an average daily business volume of more than 2.2 billion dollars a day. The EUR/USD is the most negotiated currency pair in the world, with an estimate of 30 %of all transactions, followed by the EUR/JPY (4 %), the EUR/GBP (3 %) and the EUR/AU (2 %).
The European Central Bank (ECB), based in Frankfurt (Germany), is the Eurozone reserve bank. The ECB establishes interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means controlling inflation or stimulating growth. Its main tool is the rise or decrease in interest rates. Relatively high interest rates (or the expectation of higher types) usually benefit the euro and vice versa. The GOVERNMENT BOOK of the ECB makes decisions about monetary policy in meetings that are held eight times a year. The decisions are made by the directors of the National Banks of the Eurozone and six permanent members, including the president of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the harmonized consumer prices index (IPCA), are an important economic indicator for the euro. If inflation increases more than expected, especially if it exceeds 2% of the ECB, it forces the ECB to rise interest rates to control it again. Relatively high interest rates compared to their counterparts usually benefit the euro, since they make the region more attractive as a place for global investors to deposit their money.
Published data measure the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer trust surveys can influence the direction of the single currency. A strong economy is good for the euro. Not only attracts more foreign investment, but it can encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if economic data is weak, the euro is likely to fall. The economic data of the four largest economies in the euro zone (Germany, France, Italy and Spain) are especially significant, since they represent 75% of the economy of the euro area.
Another important fact that is published on the euro is the commercial balance. This indicator measures the difference between what a country earns with its exports and what you spend on imports during a given period. If a country produces highly demanded export products, its currency will gain value simply by the additional demand created by foreign buyers seeking to buy those goods. Therefore, a positive net trade balance strengthens a currency and vice versa in the case of a negative balance
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
