The EUR/USD currency pair retreated sharply to 1.1379, down 0.52%, after hitting a six-week high of 1.1454 on Tuesday. The decline comes amid a resurgence in the US Dollar (USD), supported by robust labor market data, and intensified global trade tensions driven by tariff announcements from the US administration.
At the same time, Eurozone inflation surprised to the downside, reinforcing expectations for an upcoming European Central Bank (ECB) interest rate cut, contributing to bearish pressure on the Euro. NordaLueur presents a broker-led explanation that unpacks this topic.
Greenback Recovers as Labor Data Surprises Markets
The US Dollar Index (DXY) bounced back after falling nearly 2% earlier this week, driven by a stronger-than-expected JOLTS Job Openings report. The April JOLTS data showed job openings rising to 7.39 million, up from a revised 7.20 million in March and beating expectations for a decline to 7.10 million.
This data underpins the resilience of the US labor market, signaling continued strength in employment fundamentals and, in turn, supporting the Federal Reserve’s wait-and-see approach on policy.
At the same time, U.S. factory Orders plunged by 3.7% in April, following a 4.3% increase in March. This divergence reflects a bifurcated economic picture, strong labor, but fragile manufacturing, particularly as tariff-related uncertainty weighs on industrial activity.
Trade War Anxiety Rattles Risk Sentiment
Market participants remain cautious as the US President is set to speak with Chinese President Xi Jinping this week, according to Reuters. However, geopolitical unease spiked after the White House Press Secretary, Karoline Leavitt, confirmed that the US President will sign an executive order doubling tariffs on steel and aluminum, which are set to take effect on Wednesday.
This move exacerbates concerns over global trade disruptions, reviving memories of the 2018-2019 trade war that rattled markets worldwide. With US-China trade relations back in focus, demand for safe-haven assets like the US Dollar has returned, further pressuring risk-sensitive currencies like the Euro.
Euro Undermined by Soft Inflation and ECB Policy Outlook
On the European front, Eurozone inflation data disappointed, with May’s Harmonized Index of Consumer Prices (HICP) falling by 1.9%, dropping below the ECB’s 2% inflation target for the first time in eight months. More critically, core HICP, which excludes volatile food and energy prices, declined to 2.3% year-on-year, down from 2.7% previously.
These numbers reinforce dovish expectations ahead of the ECB’s monetary policy meeting this week.
Markets have largely priced in a 25 basis point rate cut, with the Deposit Facility Rate projected to fall from 2.25% to 2.00%. Analysts will closely watch ECB President Christine Lagarde’s press conference for cues on the trajectory of future rate policy and asset purchase programs.
EUR/USD Technical Analysis: Bulls Lose Grip Below 1.1400
Technically, EUR/USD maintains a medium-term bullish bias, but the pair is showing signs of a pullback after failing to sustain gains above 1.1400. The Relative Strength Index (RSI) on the daily chart remains in bullish territory, but recent price action suggests momentum is fading.
A decisive break below the June 2 low of 1.1344 could accelerate the decline toward the 1.1300 psychological level. Below that, traders will look to the 20-day Simple Moving Average (SMA) at 1.1278, followed by the 50-day SMA at 1.1218, and ultimately the 1.1200 support zone if downside pressure intensifies.
On the upside, a sustained move above 1.1400 could encourage fresh buying, with short-term targets at 1.1454 (weekly high) and 1.1573 (April 21 YTD peak).
Fed Officials Weigh In on Inflation and Trade Impact
Federal Reserve officials have acknowledged the rising uncertainty caused by trade tensions. Fed Governor Lisa Cook said that current policy is “well-positioned” for a range of scenarios, but she expects higher inflation and slower growth as a consequence of escalating tariffs.
Meanwhile, Chicago Fed President Austan Goolsbee emphasized the need to monitor how tariffs filter through inflation, adding that the Fed must determine whether the impact is transitory or sustained.
These comments suggest a cautious Fed, with policymakers unwilling to act prematurely until more data, particularly on inflation, warrants a shift.
Conclusion: EUR/USD Faces Crosscurrents
The current retreat in EUR/USD reflects a confluence of strong US economic data, heightened geopolitical tensions, and soft Eurozone fundamentals. While the longer-term uptrend remains intact, near-term risks are tilted to the downside, especially if upcoming US employment figures and ECB policy signals reinforce the existing divergence between the two economies.
Traders should prepare for increased volatility in response to data and headlines, particularly as central bank divergences and trade policy developments continue to reshape global currency market dynamics. Until clarity emerges from the ECB and the Fed, EUR/USD is likely to remain data-dependent and sensitive to risk sentiment shifts.
