The EUR/USD currency pair has been recently very volatile, currently trading close to weekly high at 1.1365. This increase comes amidst a growing economic crisis in Europe. At the same time, structural trade tensions continue to brew due to the behavior of US President Donald Trump’s administration. The markets are still digesting a torrent of economic data releases and major geopolitical events. Investors and analysts are focused on how these developments will continue to influence the euro and the dollar.
In May, European business activity contracted more than expected, igniting fears of a double dip in the region’s economy. Meanwhile, in the United States, President Trump’s “One Big Beautiful Bill Act” has aimed to reshape taxes and government spending, further complicating the economic landscape. The interaction of these three has created volatility, working to change the currency trading landscape.
Economic Indicators Signal Diverging Paths
The EUR/USD pair has been driven, in large part, by recent economic indicators from both sides of the Atlantic. These indicators have proven to be major movers of the market. The business output of the eurozone is in outright decline. Contrastingly, the United States is enjoying a renaissance in its manufacturing and services sectors. As a result, manufacturing output in the US extremes jumped from 50.2 to 52.3. To add to the good news, the Services PMI jumped, increasing from 50.8 to 52.3. All of these positive indicators point to a huge economic disparity between the two regions. This divergence may continue to affect the direction of the USDCAD pair.
Despite these positive improvements, President Trump’s administration is still intent on pursuing aggressive, ill-conceived, restrictive trade policies that could hit economic growth hard. He signaled early on that tariffs would be one of his main tools to promote the US economy and American producers above all else. His administration issued a warning against using Chinese chips, specifically targeting Huawei, which could exacerbate tensions in international trade.
“International trade will be changed forever by the tensions over tariffs,” – Christine Lagarde
This one statement from Lagarde sums up the bigger worry about what’s happening with global trade patterns and what that means for long-term development.
Trade Relations and Tariff Impacts
US-EU trade relations are a bit of a rollercoaster. An interim accord brokered by the United States established a 90-day ceasefire between the two sides. This latest truce seeks to reduce the heavy retaliatory tariffs that have marked their relationship in recent years. Earlier this week, President Trump expressed his impatience over the glacial pace of trade talks with the EU. He recently proclaimed that the negotiations are “dead in the water.”
Additionally, Mexico has become the number one exporter to the United States, at $466.6 billion in exports. This reorients the conversation internally within North America, but more significant is the changing landscape in trade relationships. With these dynamics at play, the EUR/USD pair’s 14-day momentum indicator floats aimlessly around its midline, suggesting indecision in traders’ mood.
Investors are gearing up for data releases later this week that may impact currency trading strategy. The US is about to release its April Personal Consumption Expenditures (PCE) Price Index numbers. At the same time, Germany is getting ready to publish its April Retail Sales figure and a preliminary May release for its HICP (Harmonized Index of Consumer Prices). Market participants are understandably worried as these reports have the potential to do even more damage to perceptions of economic health in these two districts.
Market Reactions and Future Outlook
As traders analyze these developments, technically indicators show mixed signals for the EUR/USD pair. The Relative Strength Index (RSI) currently points north at just under 57, showing bullish momentum is building. Yet, the currency pair’s total momentum is still mixed, displaying the highly uncertain nature of today’s economic environment.
With ongoing discussions surrounding tariffs and trade agreements, along with significant domestic policy changes in the US, market participants remain cautious. It’s comprised of the continuing interplay between economic performance and geopolitical events and investor sentiment.
President Trump’s assertions about taking advantage of trade negotiations only underscore the urgency for both sides to reach a mutually beneficial resolution. The continuing trade war and the proposed tax cut bill fuel concerns about economic health on both sides of the Atlantic.