- EUR/USD is retracing previous losses after dropping to 1.1213 lows.
- A US court decision to block trade tariffs sent the US Dollar rallying during the Asian session.
- In Europe, weak macroeconomic data keeps acting as a headwind for the Euro recovery.
EUR/USD is trading with moderate losses, around 1.1285 at the time of writing, after bouncing up from 1.1213 lows. A sentence by a US court ruling against trade tariffs rattled markets during the Asian session, sending the US Dollar (USD) to its highest levels in the last ten days.
The three judges from the US Court of International Trade have voted unanimously against US President Donald Trump’s sweeping trade tariffs, as they consider that the exclusive authority to regulate commerce resides with Congress.
The news boosted risk appetite, triggering significant rallies on the US Dollar and sending Asian and European Stock markets higher. Wall Street futures are also pointing to a strong opening.
Investors have welcomed the court ruling. Trump’s tariffs had fuelled concerns that higher inflationary pressures and a weaker economic outlook would pose a headache to the Federal Reserve (Fed), as the minutes of the last monetary policy meeting revealed.
The US Government, however, appealed the sentence quickly, which suggests that a lengthy process will follow. This might halt the relief rally at some point, but so far, the positive market mood has eased the “Sell America” trade.
Daily digest market movers: The Dollar jumps as a US court blocks trade tariffs
- The US Court of International Trade has invalidated with immediate effect Trump’s “Liberation Day” tariffs and instructed the administration to issue orders reflecting the ruling within the next ten days. The government appealed the sentence, questioning the court’s authority.
- The US Dollar Index (DXY), which measures the value of the Greenback against six major currencies, has returned above the 100.00 psychological level and is trading about 1.8% above last week’s lows.
- The news on levies has also prompted investors to pare back Fed easing hopes. Futures markets are now pricing an average of 42 basis points of interest rate cuts this year, down from 50 earlier this week.
- In the Euro Area, better-than-expected Italian business and consumer confidence figures have partially offset the negative impact of the downbeat German and French employment data seen on Wednesday, providing additional support to the Euro.
- On Wednesday, the Minutes of the last Federal Reserve meeting reflected the central bank’s concerns about the risks of stagflation. Such a scenario would force the Fed to prioritize one of its two mandates: promoting employment or fighting inflation, which would deteriorate investors’ confidence in the US Dollar and other US assets.
- In the US calendar today, the second estimation of the first quarter’s GDP is expected to confirm that the economy contracted at a 0.3% level, following 2.4% and 3.1% advances in the previous two quarters.
- Apart from that, the Weekly Jobless Claims and several Fed speakers will provide some fundamental background for the US Dollar ahead of Friday’s all-important Personal Consumption (PCE) Price Index release.
Technical analysis: EUR/USD is likely to meet resistance at 1.1285 and 1.1315
EUR/USD is going through a bearish correction after last week’s impulsive rally. The pair broke and confirmed below the ascending channel’s bottom, before finding some support at the May 20 low at 1.1215.
Price action is showing a mild recovery, yet with technical indicators well within bearish territory on the 4-hour chart. Upside attempts are likely to be challenged at a previous intraday support in the 1.1285 area and the reverse trendline, now at 1.1315.
Below the mentioned 1.1215 support area, the next targets are 1.1130 (May 16 low) and 1.1065 (May 12 low).
EUR/USD 4-Hour Chart
better-than-expected
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
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