EUR/USD Loses Ground in the Run-Up to Eurozone Inflation Data as US Dollar Experiences Technical Correction
EUR/USD is losing ground as the US Dollar recovers on technical basis even as the US manufacturing data remains soft. Market players remain focused on the release of forthcoming Eurozone HICP inflation data, which may set the direction for ECB policy. In the meantime, trade tensions have flared again after Donald Trump suggested doubling steel and aluminium tariffs, which elicited a sharp retort from the European Union. With increasingly worrying fears about global trade and economic deceleration, investors stay on guard ahead of major US labor market releases, which may further influence currency action. KEY LOOKOUTS • The markets are looking forward to the publication of the Harmonized Index of Consumer Prices (HICP) that will provide a glimpse into the European Central Bank (ECB) policy direction. • US Dollar recovers on technical correction, even as a softer ISM Manufacturing PMI reading hints at possible stagflation pressures in the US economy. • Trump’s suggestion that tariffs on steel and aluminium be doubled in size stokes concerns about intensifying trade tensions, prompting denials from the European Union and putting at risk current negotiations. • Investors look to the next US JOLTS report for new labour market indications that will affect USD strength and inform near-term EUR/USD action. EUR/USD is lower around 1.1420 in the Asian session on Tuesday, as the US Dollar experiences a technical correction in spite of continued fears of economic slowdown. The pair fell after its robust performance in the last session, having appreciated more than 0.50%. Traders now await the forthcoming Eurozone Harmonized Index of Consumer Prices (HICP) inflation to see how it affects European Central Bank policy expectations. On the other hand, US manufacturing activity continues to shrink as the ISM Manufacturing PMI fell to 48.5 in May, a third month of falling, adding to the market angst. Adding to market nerves, President Donald Trump’s plan to double steel and aluminium tariffs has heightened trade tensions concerns as the European Union threatened possible countermeasures that could threaten bilateral talks. EUR/USD drifts lower around 1.1420 on technical bounce for US Dollar, down on poor US manufacturing data. Market sentiment takes a hit with rising trade tensions following Trump’s tariff increase. • EUR/USD declines around 1.1420 after recording more than 0.50% on the last session, pummeled by a rebounding US Dollar. • US Dollar bounces on technical correction even as weaker-than-anticipated ISM Manufacturing PMI data drops to 48.5 in May. • European Central Bank’s next interest rate move could be influenced by eurozone HICP inflation data. • Trade tensions escalate as Donald Trump lays out a plan to double US tariffs on steel and aluminium imports, putting pressure on global markets. • European Union reacts forcefully, threatening Trump’s tariff increase can derail current trade talks and trigger retaliatory measures. • US economic worries continue, as stagflationary signs rise as manufacturing production falls for a third consecutive month. • Traders await US JOLTS Job Openings report later today for additional information on labor market strength and possible USD effect. The foreign exchange market is paying close attention to events in the Eurozone and the United States as significant economic and political events unfold. Traders are looking to the publication of the Eurozone’s Harmonized Index of Consumer Prices (HICP), an important inflation reading that could have implications for European Central Bank policy later on. Meanwhile, the overall market mood is being influenced by the revived trade tensions following former US President Donald Trump’s decision to double import tariffs on steel and aluminum, which was met with strong criticism from the European Union. The EU has threatened that such a move could dash hopes of pending trade negotiations and prompt retaliatory actions, which casts a cloud of uncertainty over the global economic outlook. EUR/USD DAILY PRICE CHART CHART SOURCE: TradingView At the same time, recent US data keeps highlighting issues in manufacturing. The most recent ISM Manufacturing PMI report showed a third month of slowing down, which indicates stress on the industrial part of the economy. In spite of that, the US Dollar has still been able to recover some lost ground as a result of market positioning and technical considerations. In the near future, focus will be on the US JOLTS Job Openings report, which can offer additional insight into the health of the US labor market and inform expectations for future economic trends. TECHNICAL ANALYSIS EUR/USD is immediately met with resistance around the 1.1450 level, an area that corresponds with recent session highs and could limit further upside if bullish pressure diminishes. To the downside, initial support is at 1.1380, where buyers previously intervened, then even firmer support at the 1.1350 handle, which aligns with the 50-day moving average. Momentum indicators such as the Relative Strength Index (RSI) are in the neutral range, predicting a possible consolidation phase unless a clear breakthrough or breakdown happens. Traders will be looking for a sustained breakout above resistance or below strong support to establish the next direction of travel. FORECAST The Euro initially responded well, with EUR/USD increasing more than 0.50% during the last session as investor sentiment improved temporarily. Support from positive momentum came courtesy of expectations regarding the soon-to-be-released Eurozone HICP inflation data that can provide some indication of the European Central Bank’s next policy decision. Moreover, worries of decelerating US economic numbers, such as softer manufacturing data, helped to encourage a more bearish sentiment regarding the US Dollar. These sentiments assisted the Euro to rally during the initial trading session, aided by optimism and positioning within markets. The advances, however, were temporary as the US Dollar recovered owing to a technical reversal, pushing EUR/USD down around the 1.1420 level. The Dollar’s rebound occurred notwithstanding the continued uncertainty over economic softness, such as a third straight monthly drop in US factory output. To add to the bear pressure on the Euro, news of former US President Donald Trump’s plan to raise tariffs on steel and aluminium again fueled trade war fears. Further hammering the sentiment was the European Union’s threat