- EUR/USD managed to trim losses and end the day almost unchanged.
- The US Dollar surrendered its initial strong advance, eventually receding marginally.
- Markets’ attention now looks at US Q2 GDP data and weekly Initial Claims.
The Euro (EUR) bounced back on Wednesday, with EUR/USD reclaiming the 1.1640 zone after sliding to three-week lows near 1.1570 earlier in the day. The move came as the US Dollar (USD) lost some of its early strength, even with investors staying cautious over the Fed’s independence and the upcoming US data run.
Trade tensions cool, but tariffs still sting
Global trade worries have calmed for the moment. Washington and Beijing agreed to extend their truce by 90 days, with President Trump delaying tariff hikes until November 10 while China pledged reciprocal steps. Even so, tariffs remain steep at 30% on Chinese goods headed to the US and 10% in the other direction.
Meanwhile, the US and EU reached a compromise. Washington slapped a 15% tariff on most European imports, while Brussels agreed to scrap duties on US industrial goods and expand access for American farm and seafood exports. A cut to US tariffs on European cars is still possible, but only after new EU legislation clears the way.
French politics back in play
In Europe, the focus is squarely on France, where Prime Minister François Bayrou faces a September 8 confidence vote over his budget plan. Opposition parties from the far-right National Rally to the Greens and Socialists have already said they will not back him, leaving his minority government on shaky ground. If he loses, President Emmanuel Macron could appoint a new prime minister, keep Bayrou in a caretaker role, or even call a snap election.
Fed: Waiting for the data
The Federal Reserve (Fed) held rates steady at its last meeting, with Chair Jerome Powell striking a balanced tone. He warned of growing risks to the labor market while noting inflation has yet to return to target, keeping the door wide open for a rate cut as soon as next month. Investors are now laser-focused on the August Nonfarm Payrolls (NFP) due September 5 and fresh inflation figures the following week to judge the Fed’s next move.
ECB: In no hurry
The European Central Bank (ECB), by contrast, is taking a calmer stance. President Christine Lagarde described eurozone growth as “solid, if a little better,” signaling no urgency to ease. Markets expect the ECB to hold rates steady well into 2025, with the first cut pencilled in for spring 2026.
Speculators add to bullish bets
Commodity Futures Trading Commission (CFTC) data showed net long Euro positions rising to a three-week high near 118.7K contracts, while institutional shorts eased to a two-week low. Open interest also climbed for a second straight week, suggesting firmer conviction in positioning.
Technical landscape
EUR/USD is showing signs of life but remains stuck in consolidation. On the topside, resistance comes in at the August high of 1.1742 (August 22). Clearing that level could pave the way toward 1.1788 (July 24) and the 2025 ceiling at 1.1830 (July 1). A stronger push might even open the door to the September 2021 top at 1.1909, just shy of the 1.2000 psychological mark.
Interim support lies at the 100-day simple moving average (SMA) at 1.1502, ahead of the August low at 1.1391 (August 1) and the weekly base at 1.1210 (May 29).
Momentum indicators remain mixed: the Relative Strength Index (RSI) is holding just above 50, pointing to mild upside potential, but the Average Directional Index (ADX) sits below 11, underscoring the lack of a clear trend.
EUR/USD daily chart
Big picture
So far, EUR/USD looks set to remain in consolidation mode. A catalyst will be needed to break the range — whether that’s fresh guidance from the Fed or new trade headlines. Until then, the dollar is likely to retain the upper hand in setting the tone.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day.
EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy.
The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control.
Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency.
A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall.
Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
