The EUR/USD currency pair has surged to a six-week high, reaching 1.1449, as intensifying global trade tensions and disappointing U.S. economic data weigh heavily on the Greenback.
The pair climbed 0.68% during the North American session, with the Euro strengthening amid escalating concerns over transatlantic trade relations and persistent manufacturing contraction in the United States. This article provides a clear, informative look at this matter from Vestronmix’s brokers.
Weak U.S. ISM Manufacturing Data Pressures the Dollar
The primary macroeconomic catalyst for the Euro’s ascent came from the ISM Manufacturing PMI, which dropped to 48.5 in May, down from 48.7 in April. This marks the lowest level since November, reinforcing that the U.S. manufacturing sector remains mired in contractionary territory.
Particularly concerning was the continued weakness in the Employment Index, which improved only marginally from 46.5 to 46.8, and the elevated Prices Index at 69.4%, indicating persistent inflationary pressures.
Meanwhile, the S&P Global Manufacturing PMI, though still in expansion territory at 52.0, slipped from 52.3, suggesting that overall industrial activity may be losing momentum. Combined, these figures paint a picture of a sluggish economic recovery, undermining the case for the Federal Reserve (Fed) to maintain its restrictive monetary policy stance.
Fed’s Dovish Turn and Rate Cut Hopes Support the Euro
Fed Governor Christopher Waller has added to the bearish tone on the Dollar by signaling a more dovish stance. In his latest remarks, Waller suggested that rate cuts remain possible later in 2025, even as he reaffirmed the Fed’s commitment to taming inflation.
This shift in tone has fueled speculation in the interest rate markets, with traders increasingly pricing in a 25-basis-point cut by year-end.
As expectations of U.S. rate cuts grow, yield differentials between the U.S. and Eurozone sovereign bonds begin to narrow, giving the Euro further support. This dynamic is contributing to the so-called “Sell America” trade, where investors reduce USD exposure in favor of other major currencies.
Eurozone Trade Developments and PMI Data Mixed
On the European front, European Commission Vice President Maroš Šefčovič is expected to meet U.S. Trade Representative Jayme Greer in Paris, as tensions rise over tariffs and digital tax regimes. While the outcome of the talks remains uncertain, markets are watching closely for any signs of a transatlantic trade rift, which could affect market sentiment and currency flows.
Meanwhile, the HCOB Eurozone Manufacturing PMI for May printed at 49.4, the highest reading in nearly three years, though still in recession territory. Notably, Spain was the only major Eurozone economy to register expansion, while Germany’s PMI was revised down to 48.3, reflecting ongoing industrial weakness in the bloc’s largest economy.
The Euro has remained resilient, with traders focused on forward-looking expectations for the European Central Bank (ECB). Market participants widely anticipate a 25-basis-point cut in the Deposit Facility Rate at the next ECB meeting, bringing it to 2.00%.
However, given the already priced-in expectations, the Euro’s strength may persist unless the ECB surprises with a more aggressive easing cycle.
EUR/USD Technical Analysis: Eyes on 1.1450 and Beyond
From a technical standpoint, the EUR/USD pair has broken through key resistance at 1.1400, now targeting the 1.1450 level. If buyers can reclaim and maintain control above this level, the pair could aim to test the year-to-date (YTD) high at 1.1573, last seen on April 21.
The Relative Strength Index (RSI) on the daily chart remains in bullish territory, indicating that momentum favors the upside. However, the rally does appear overextended, suggesting a potential retracement may occur, especially around ECB policy decisions or a sudden reversal in U.S. economic sentiment.
On the downside, initial support lies at 1.1400, followed by a more substantial floor at 1.1350. A break below would expose 1.1300 and the 20-day Simple Moving Average (SMA) at 1.1277, marking the edge of short-term trend support.
Outlook: Key Events Could Drive Further Volatility
In the coming week, traders will be closely monitoring a slew of high-impact economic data. For the Eurozone, attention will center on inflation figures, the ECB’s monetary policy announcement, and ECB President Christine Lagarde’s press conference, all of which could offer crucial guidance on the central bank’s policy trajectory.
From the U.S., upcoming releases include Nonfarm Payrolls (NFP), the ISM Services PMI, and remarks from several Federal Reserve officials. These events have the potential to reinforce or disrupt current market narratives, particularly if the labor market data deviates significantly from consensus expectations.
Conclusion
The EUR/USD has staged a convincing rally to a six-week high of 1.1449, driven by a combination of weak U.S. economic data, dovish Fed rhetoric, and mounting global trade tensions.
As the market grapples with policy shifts and geopolitical developments, the pair could remain buoyant in the short term, with 1.1500 in sight. However, volatility may surge around upcoming central bank decisions and key data releases, keeping traders alert and highly reactive.
