EUR/USD dives after the EU-US trade deal with investors eyeing the Fed
- The Euro accelerates its decline on Monday as investors analyze the details of the EU-US trade deal.
- Eurozone products face a 15% tariff in exchange for strong EU investment and large purchases of energy and military equipment from the US.
- The US Dollar maintains a moderate positive tone as US data backs the Fed’s hawkish stance.
It was buy the rumour, sell the fact for the EUR/USD pair, which accelerated its reversal from last week’s lows on Monday’s Early European session. News that the European Union (EU) finally signed a trade agreement with the United States (US) has failed to provide any significant support to the Euro (EUR), while the US Dollar (USD) extends its recovery as investors brace for a hawkish Fed stance.
The common currency has dropped beyond 100 pips so far on Monday and is on track for its worst daily performance in months. The pair was rejected at 1.1770 on early trading and is trading at 1.1660 ahead of the US session opening, with technical indicators deep into bearish territory.
The European Commission President Ursula von der Leyen signed a pact with the US President Donald Trump, which will reduce tariffs on European products to 15%, half of the 30% rate announced by Trump earlier in July. In exchange, the Eurozone has committed to invest EUR 600 billion in the US and ramp up purchases of Gas and military equipment.
The deal has been unable to alter the recent balance of power between the Euro and the US Dollar, with the latest supported by relatively upbeat US data, which backs the Federal Reserve’s (Fed) “wait and see” stance and practically discards any interest rate change after this week’s monetary policy decision.
The economic calendar is thin today, with only the Dallas Fed Manufacturing Business Index providing some fundamental guidance during the US session. Investors are likely to remain calm ahead of a busier second half of the week, with Wednesday’s Federal Reserve decision and Friday’s Nonfarm Payrolls (NFP) report for July attracting the focus.
Euro PRICE Today
The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.81% | 0.08% | 0.39% | 0.13% | 0.70% | 0.59% | 0.44% | |
| EUR | -0.81% | -0.75% | -0.40% | -0.69% | -0.11% | -0.23% | -0.37% | |
| GBP | -0.08% | 0.75% | 0.18% | 0.07% | 0.65% | 0.53% | 0.38% | |
| JPY | -0.39% | 0.40% | -0.18% | -0.25% | 0.27% | 0.18% | 0.19% | |
| CAD | -0.13% | 0.69% | -0.07% | 0.25% | 0.55% | 0.46% | 0.31% | |
| AUD | -0.70% | 0.11% | -0.65% | -0.27% | -0.55% | -0.12% | -0.31% | |
| NZD | -0.59% | 0.23% | -0.53% | -0.18% | -0.46% | 0.12% | -0.15% | |
| CHF | -0.44% | 0.37% | -0.38% | -0.19% | -0.31% | 0.31% | 0.15% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).
Daily digest market movers: The EU-US trade deal fails to convince markets
- According to EC President von der Leyen, it was “the best deal we could get”, yet probably not the best deal investors were hoping for. The European Union will face 15% levies, which is not 30%, but neither the original zero-for-zero deal aimed at by Brussels. The 15% tariffs extend to pharmaceutical products and automobiles, the Eurozone’s main exports to the US. In exchange, Europe will have to invest EUR 600 billion in the US and buy EUR 750 billion of its Gas. The Euro reacted negatively as markets analysed the small letter in the pact.
- The US Dollar maintains a moderately bid tone from last week. Data released on Friday revealed that US Durable Goods Orders contracted by 9.3%, their worst performance in years, but still better than the 10.8% drop forecasted by market analysts. Beyond that, excluding transportation, the so-called “core Durable Goods” increased at a 0.2% rate, beyond the 0.1% expected.
- These figures come after an unexpected decline in the weekly US Initial Jobless Claims released on the previous day. Claims for unemployment benefits fell for the sixth consecutive week, reaching their lowest levels in the last three months, highlighting the resilience of the labour market and providing further leeway for the Federal Reserve to keep interest rates higher for longer.
- The Fed’s Monetary Policy Committee meets on Tuesday and Wednesday, and is widely expected to leave its benchmark Funds Rate unchanged at the current 4.25%-4.50% range. The main attraction of the event will be Fed Chairman Jerome Powell’s press release to see whether the latest trade deals and potential rebound in US GDP, which will be released earlier on the same day, can alter the bank’s cautious stance on further rate cuts.
EUR/USD has broken key support at 1.1700
EUR/USD came under strong bearish pressure at the European session opening and broke support at the 1.1700-1.1710 area in the early European session, confirming a Head & Shoulders (H&S) pattern, a classical figure for trend shifts. Technical indicators are pointing lower. The 4-hour Relative Strength Index (RSI) has plunged into negative territory below 50, and the MACD is showing an intense bearish momentum.
The pair has extended its reversal below the July 22 low at 1.1680, heading to the H&S´s measured target, which is coincident with the 18 and 21 lows, at 1.1617. The Euro should be heavily oversold if that level is reached, which would likely lead to some correction. Further down the next downside target would be the mid-July low at 1.1555.
On the upside, the pair should return above 1.1710 to ease bearish pressure, and shift the focus towards the intraday high, at 1.1770, and the July 24 high at 1.1790 are likely to challenge bulls ahead of the multi-year high at 1.1830.
