EUR/USD edges higher after preliminary Eurozone HICP release, Trump’s tariffs remain key
- EUR/USD ticks up to near 1.0820 after the release of the preliminary Eurozone HICP data for March.
- The Eurozone inflation grows at a faster pace in March but cools down on a yearly basis.
- Market participants are mixed over whether Trump’s tariffs would lead to a recession in the US.
EUR/USD attracts some bids and ticks higher to near 1.0820 during the European trading session on Tuesday after the release of the preliminary Eurozone Harmonized Index of Consumer Prices (HICP) for March and the Eurozone Unemployment Rate for February.
On a monthly basis, the headline and core HICP – which excludes volatile items such as food, energy, alcohol, and tobacco – rose by 0.6% and 1%, respectively.
In 12 months to March, the Eurozone HICP rose by 2.2%, as expected, slower than the 2.3% increase seen in February. In the same period, the core HICP grew moderately by 2.4% compared to expectations of 2.5% and the former release of 2.6%.
The Unemployment Rate decelerated to 6.1% in February from the prior release and the estimates of 6.2%.
The impact of the Eurozone inflation data is expected to be limited on the European Central Bank’s (ECB) monetary policy outlook as United States (US) President Donald Trump is set to unveil a detailed reciprocal tariff plan for all of the US trading allies on Wednesday, which is expected to be inflationary and weaker for growth in the shared continent.
Market participants expect Trump to announce a significant number of tariff measures on the Eurozone as the President has blamed the European Union (EU) for adopting unfair trade practices against the US.
The announcement of a 25% levy on imports of foreign cars and light trucks into the US, which will become effective on Wednesday, has already forced financial market participants to revise down their growth forecasts for Germany, given that 13% of the country’s total auto exports are taken by the US.
The European Commission (EC) has prepared countermeasures in advance to respond to Trump’s expected new suite of tariffs, as reported by EC President Ursula von der Leyen during European trading hours on Tuesday. “We do not necessarily want to retaliate, but if it is necessary, we have a strong plan to do so, and we will use it,” von der Leyen said, adding that we have the power to “push back against US tariffs”.
On Monday, ECB President Christine Lagarde said in an interview with France Inter radio that she sees April 2, touted as “Liberation Day” by Trump, as a moment when we must together decide to take “better control of our destiny” and a step towards independence.
Daily digest market movers: EUR/USD remains on tenterhooks ahead of Trump’s tariffs
- EUR/USD stays on its toes as the Euro and the US Dollar (USD) outlook is uncertain as tariffs from President Trump are inevitable. Market participants expect that Trump’s tariffs will also result in economic shocks for the US economy as domestic importers will bear the burden of higher prices.
- Investors also expect that Trump’s economic policies could lead to a recession in the US. Market participants' confidence in recession risks escalated after a slew of US officials, including President Donald Trump, didn’t rule out the possibility of economic damage when asked whether new policies could lead to a recession.
- Meanwhile, investment banking firm Goldman Sachs has also revised its chances for a potential recession to 35%, up from their prior expectations of 20%. The upward revision for recession risks was based on a sharp “deterioration in household and business confidence”.
- International Monetary Fund (IMF) Managing Director Kristalina Georgieva also signaled in an interview with Reuters NEXT Newsmaker on Monday that Trump’s push for imposing reciprocal tariffs has created greater uncertainty and dented confidence, but ruled out fears of a recession. Georgieva said that the IMF is not seeing a" dramatic impact" from the tariffs slapped and threatened so far by Trump.
- On the economic front, investors await a slew of business and labor market-related data, which will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook. In Tuesday’s session, investors will pay close attention to the US S&P Global and ISM Manufacturing Purchasing Managers Index (PMI) data for March and the JOLTS Job Openings data for February, which will be published during the North American session.
Technical Analysis: EUR/USD oscillates inside Monday’s trading range
EUR/USD edges up around 1.0820 against the US Dollar on Tuesday but stays confined inside Monday’s trading range. The near-term outlook of the pair remains firm as it holds the 20-day Exponential Moving Average (EMA), which trades around 1.0776.
The 14-day Relative Strength Index (RSI) cools down below 60.00, suggesting that the bullish momentum is over, but the upside bias is intact.
Looking down, the December 6 high of 1.0630 will act as the major support zone for the pair. Conversely, the psychological level of 1.1000 will be the key barrier for the Euro bulls.
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.