The EUR/USD currency pair, the most heavily traded in the world, faces renewed pressure as risk aversion and demand for the US Dollar intensify. Market participants remain wary as US President Donald Trump maintains his stance on tariff threats, impacting global trade dynamics. On Tuesday, the Euro corrected lower after briefly reaching a two-week high of 1.0430, spurred by a partial recovery of the US Dollar from Monday's losses.
The Euro serves as the official currency for 19 European Union countries that are part of the Eurozone. The European Central Bank (ECB), headquartered in Frankfurt, Germany, oversees the monetary policies of these nations. With a primary mandate to maintain price stability, the ECB plays a crucial role in either controlling inflation or stimulating economic growth. Interest rates set by the ECB significantly affect the Euro's value, with higher rates typically benefiting the currency.
The ECB's decision-making process is conducted through its Governing Council, which meets eight times a year to determine monetary policy. This council comprises heads of national banks from Eurozone countries and six permanent members, including ECB President Christine Lagarde. Various economic indicators, such as GDP, Manufacturing and Services PMIs, employment figures, and consumer sentiment surveys, influence the Euro's trajectory.
A positive net trade balance strengthens a currency, while a negative balance exerts downward pressure. Currently, the EUR/USD pair is battling against such pressures, with the US Dollar gaining ground due to Trump's tariff threats. The pair has encountered resistance as it attempts to consolidate gains made earlier in the week.
On Tuesday, the US Dollar managed to pare some of its losses from Monday, leading to a correction in the EUR/USD pair. Despite reaching a two-week high of 1.0430, the pair faces challenges in maintaining this level due to renewed dollar demand. The 14-day Relative Strength Index (RSI) showed signs of forming a higher low, even as the pair made lower lows, indicating potential volatility ahead.
A critical support zone for the EUR/USD pair is identified at the January 13 low of 1.0177. Traders closely monitor this level as it may serve as a key threshold for potential reversals or further declines. The interplay between Eurozone economic indicators and US trade policies continues to shape the pair's performance.