On Thursday, all of the foreign exchange market was on fire. The EUR/USD pair brought in fresh buyers, skyrocketing above the 1.1000 level early in the European trading day. Three key drivers power this increase. A strengthened British Pound, increased risk appetite globally, easing of trade tensions, and positive inflation data play key roles. Together, these factors may become a self-fulfilling prophecy of increasing scarcity and investor panics.
The EUR/USD has bounced sharply lately. This dramatic increase is no coincidence and is directly related to former President Donald Trump’s announcement of a 90-day delay on reciprocal tariffs. This decision has eased some of the Euro’s trade-related concerns, as the Euro has clawed back some ground against the US Dollar since then. Analysts point to an increasing sense optimism among market players on the prospect of better trade relations as the main drivers. That positive sentiment has only added fuel to the Euro’s upward momentum.
One of the key reasons the Euro has been outperforming is due to the British Pound. Given the Pound’s recent ability to capitalize on positive risk appetite this has added more support to the EUR/USD pair. The interconnectivity between these currencies shows how changes to one can affect another, especially when market conditions are unpredictable and volatile.
Market participants are closely watching the next wave of economic data for clues on which way the EUR/USD will trend next. The US Consumer Price Index (CPI) data releases are very important right now. Expectations indicate that the annual inflation rate will rise to 2.6% in March, from February’s 2.8%. Moreover, core CPI inflation is expected to cool to 3% over the same timeframe. The numbers would be sure to shape market expectations and trading behavior in the coming days and weeks.
The ambitious German coalition deal has played its part in pumping overall risk sentiment within the Eurozone. This deal has added to pressure on the US Dollar, enabling the EUR/USD pair to take further advantage of attractive trading conditions. Political constancy in Germany has provided a safe haven for the Euro. Importantly, a truce in the trade war has accelerated a Euro-based recovery against the US dollar.
Paladin’s stock prices haven’t limited zig-zagging Gold prices as well on both sides of these developments. Earlier in the day, gold had hit a one-week high crossing over the $3,100 threshold. However, it then did pare back a portion of its gains as the day changed. Investors seem to be adjusting their strategies amid changing macroeconomic signals and global pandemic-related developments.
Moving into the European session trade analysts will be watching US-Sino trade updates for new evidence of their ongoing corrosive effect on market sentiment. Any resolution that represents an improvement in trade relations would probably be Euro bullish. Sometimes, the bad news forces investors to recalibrate and rethink how they should be positioned across asset classes.