- EUR/USD pulls back after hitting a two-week high of 1.0430, as the US Dollar recovers some of its Monday losses.
- The US Dollar gains strength following Donald Trump’s confirmation that the tariff hike plan is still in play.
- Trump’s focus on addressing the trade imbalance with Europe is likely to keep the Euro under pressure.
EUR/USD edged lower toward 1.0350 during Tuesday’s North American session, retreating from Monday’s high of 1.0430. The pair faced renewed pressure as the US Dollar (USD) regained strength, recovering some of the ground lost earlier. The US Dollar Index (DXY), which measures the Greenback’s performance against six major currencies, bounced back to around 108.50 after briefly dipping below 108.00 to a nearly two-week low.
The US Dollar plunged sharply on Monday following a presidential memo from Donald Trump that lacked immediate action on tariff impositions. According to the Wall Street Journal (WSJ), the memo instructed federal agencies to review trade policies and assess the United States’ trade relationships with China and neighboring countries.
Trump later clarified that while universal tariff hikes remain a consideration, the administration is “not ready for that yet.” He also emphasized the significant trade deficit with the Eurozone, suggesting that the imbalance could be addressed either through “raising tariffs” or by Europe “buying more US oil and gas,” as reported by Reuters.
The absence of immediate tariff announcements in Trump’s initial comments sparked strong demand for risk-sensitive currencies on Monday. The Euro (EUR) surged nearly 1.3% against the US Dollar, even as concerns about potential higher tariffs lingered.
Daily Digest: Market Movers - EUR/USD Declines as Fed Signals Prolonged Rate Stability
- EUR/USD Retreats Below 1.0400: The pair struggles to hold above the key 1.0400 level amid a modest recovery in the US Dollar. Uncertainty surrounds the Greenback as traders remain divided on its outlook, following Donald Trump’s decision to delay tariff orders. The US Dollar had gained significant ground over the past three months, driven by fears of imminent tariff hikes under Trump’s administration.
- Fed Expected to Maintain Higher Rates for Longer: Market sentiment suggests that the Federal Reserve (Fed) will take a gradual approach to policy easing, supporting the US Dollar. According to the CME FedWatch tool, traders are confident that the Fed will not cut interest rates in upcoming meetings, including those later this month and in March.
- ECB’s Dovish Outlook Weighs on the Euro: In contrast, expectations of continued gradual easing from the European Central Bank (ECB) are pressuring the Euro. Market participants anticipate a series of 25-basis-point cuts to the Deposit Facility rate over the next four meetings. ECB policymakers, including Croatian central bank chief Boris Vujčić, have signaled comfort with current market pricing, stating that risks to inflation are broadly balanced.
- Economic Sentiment Diverges in Europe: On the data front, Germany’s ZEW Economic Sentiment Index fell sharply to 10.3 in January, down from 15.7 in December, missing expectations of 15.3. However, the Eurozone ZEW Economic Sentiment Index surprised to the upside, rising to 18 from 17 in December, beating forecasts of 16.9.
Technical Analysis: EUR/USD Attempts to Hold Above 20-Day EMA
EUR/USD retreated after touching a two-week high of 1.0430 during Tuesday’s European session. However, the pair rebounded following a divergence between momentum and price action. While the 14-day Relative Strength Index (RSI) formed a higher low, the pair posted lower lows, signaling a potential shift in short-term sentiment.
The near-term outlook has turned more positive as EUR/USD trades above the 20-day Exponential Moving Average (EMA), currently at 1.0346. Despite this recovery, the longer-term trend remains bearish, with the 200-day EMA at 1.0702 continuing to slope downward.
On the downside, the January 13 low of 1.0177 serves as a critical support level for the pair. On the upside, the psychological resistance at 1.0500 is expected to be a significant hurdle for Euro bulls attempting to push the pair higher.
