The Euro remains soft below 1.1600 amid renewed US-China trade tensions and cautious market sentiment.
The EUR/USD pair extended its mild losses in early European trading on Thursday, hovering just below 1.1600, after retreating from Wednesday’s high near 1.1620. A slightly stronger US Dollar continues to weigh on the common currency as renewed trade friction between Washington and Beijing revives safe-haven demand for the greenback.
However, overall market volatility remains subdued as investors await Friday’s US Consumer Price Index (CPI) report, expected to offer fresh clues on the Federal Reserve’s next policy move.
With the US government shutdown halting most data releases, trade headlines remain the primary driver of sentiment. Reports that the US may restrict software exports to China have rekindled concerns of a new phase in the trade conflict between the world’s two largest economies.
Even so, market reaction has been limited, with investors still betting that a meeting between President Donald Trump and Chinese President Xi Jinping will result in an extension of the current trade truce.
In Europe, attention will turn to a speech by ECB policymaker Philip Lane and the release of the Eurozone Consumer Confidence Index. From the US side, the Chicago and Kansas Fed National Activity Indexes and remarks from Fed Governors Michelle Bowman and Michael Barr may provide direction for the USD.
Euro Snapshot
The Euro was broadly steady, outperforming only the Japanese Yen in Thursday’s session.
- EUR/USD: -0.07%
- EUR/JPY: +0.21%
- EUR/GBP: 0.00%
The US Dollar firmed moderately across the board, supported by safe-haven flows and fresh trade-related headlines.
Market Movers: Trade Headlines Lift the Dollar
The US Dollar regained momentum on Wednesday after the White House floated potential restrictions on a range of software exports in response to China’s curbs on rare earth exports.
US Treasury Secretary Scott Bessent sought to calm markets, emphasizing that negotiations with Chinese officials are proceeding with “good intentions” and “mutual respect.”
President Donald Trump downplayed the economic impact of China’s measures, expressing optimism about reaching agreements with Xi on trade, security, and global issues such as Ukraine.
In Europe, ECB Vice President Luis de Guindos reiterated that inflation risks in the Eurozone remain balanced and that current interest rates are appropriate, highlighting encouraging progress in consumer prices.
Traders now look ahead to the delayed release of the September US CPI report on Friday, expected to show headline inflation rising to 3.1% year-on-year from 2.9% in August, while core inflation likely holds steady at 3.1%. Despite firmer inflation expectations, markets still anticipate a Fed rate cut in October.
Technical Outlook: EUR/USD Keeps Bearish Bias
The EUR/USD pair remains under pressure, struggling to gain traction above 1.1600. Resistance is capped at 1.1620, with immediate support at 1.1580—Wednesday’s low.
Momentum indicators point to further weakness:
- The RSI stays below 50, indicating negative momentum.
- The MACD remains under its signal line, confirming the bearish tone.
A break below 1.1580 could open the way to 1.1545 (October 9 & 14 lows), with further losses targeting 1.1455, the lower boundary of the descending channel. On the upside, resistance lies at 1.1625, followed by 1.1650 and 1.1728.
Background: Understanding the Euro
The Euro (EUR) is the official currency of 19 EU nations and the second most traded currency globally after the US Dollar. It accounts for roughly 31% of global FX transactions, with EUR/USD alone making up about 30% of all trades.
The European Central Bank (ECB), based in Frankfurt, governs Eurozone monetary policy. Its main objective is price stability, primarily achieved by adjusting interest rates. Higher rates generally support the Euro by attracting foreign capital, while lower rates tend to weaken it.
Key economic indicators—including inflation (HICP), GDP, employment, and trade balance—play a major role in determining the Euro’s value. A strong trade surplus or robust inflation often bolsters the currency, while weak data typically leads to depreciation.
