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EUR/USD rebounds above 1.1250 as the US Dollar pulls back from a near one-month high.
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Investors shift focus to Saturday's US-China trade talks, with US Lutnick expressing confidence in easing trade tensions.
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ECB’s Rehn highlights the persistent disinflation trend in the Eurozone and a grim economic outlook.
The EUR/USD pair climbs back to near 1.1260 during European trading hours, recovering from a three-week low around 1.1200 earlier in the day. This rebound comes as the US Dollar (USD) weakens amid cautious sentiment ahead of the upcoming US-China trade talks, scheduled for Saturday.
The US Dollar Index (DXY), which measures the USD's strength against a basket of six major currencies, retreats to approximately 100.40 after reaching a near one-month high of 100.85 earlier. Investors are now closely monitoring the trade discussions between the United States and China in Switzerland, given the significance of China as the second-largest market for US imports after Mexico.
The trade conflict between Washington and Beijing has been a primary factor driving downward revisions in global economic growth, largely due to China’s competitive labor costs. The White House remains optimistic about progress in the talks. US Commerce Secretary Howard Lutnick expressed confidence in de-escalation, stating that reducing tariffs is the primary goal for China. He also hinted at the potential for more trade deals being announced within the next month.
Meanwhile, The New York Post reported that US President Donald Trump might lower tariffs on Chinese goods to a range between 50% and 54% as soon as next week, although White House spokesperson Kush Desai has not confirmed this claim.
EUR/USD Market Sentiment: Euro Holds Steady Despite Dovish ECB Signals
- The EUR/USD pair's recovery is further supported by the Euro’s (EUR) resilience against other currencies, despite the European Central Bank's (ECB) dovish stance. ECB policymakers have expressed confidence that inflation will gradually return to the target of 2%, although concerns over the economic outlook persist.
- Olli Rehn, ECB policymaker and Finnish central bank governor, noted that if the upcoming June forecast confirms the current disinflation trend and weakening growth outlook, a rate cut may be necessary to maintain the 2% symmetric inflation target over the medium term. This dovish sentiment typically weighs on the Euro, but the currency remains relatively strong due to broader market dynamics.
- Amid these developments, investors are also keeping an eye on the EU's response to US tariffs. On Thursday, the European Commission released a public consultation paper outlining potential countermeasures against the US, targeting up to €95 billion worth of American imports if trade negotiations fail. This figure is slightly below the €100 billion reported earlier by Bloomberg.
- ECB Governing Council member Gediminas Šimkus emphasized that Eurozone inflation could be significantly impacted by the EU’s retaliatory actions. As a result, market participants are waiting for a US response to these potential countermeasures, adding another layer of uncertainty to the EUR/USD outlook.
- The EUR/USD pair remains sensitive to developments from the US-China trade talks, as well as updates on EU-US trade tensions. The upcoming weekend discussions in Switzerland could set the tone for the pair’s next move, especially if the talks either confirm or alleviate concerns over a prolonged trade conflict.
Technical Analysis: EUR/USD Holds Above 20-Day EMA
EUR/USD continues to find support near the 20-day Exponential Moving Average (EMA) at 1.1250, maintaining its position. The 14-day Relative Strength Index (RSI) remains within the 40.00-60.00 range, suggesting that bullish momentum has paused for the moment. However, the overall upward bias persists.
To the upside, the key resistance level is the psychological mark of 1.1500. On the downside, the April 3 high of 1.1145 acts as a crucial support level for Euro bulls.
