The EUR/USD exchange rate saw a notable increase of 1.4% on Tuesday, crossing the significant level of 1.0600. Market attention primarily shifted away from economic indicators, focusing instead on the implications of U.S. tariff policies. Traders are particularly poised for the European Central Bank’s monetary policy announcement scheduled for Thursday, followed by the release of U.S. Nonfarm Payrolls data on Friday.
The rally in EUR/USD was largely driven by speculation surrounding potential changes in U.S. tariff regulations. On the same day, a 25% tariff on goods imported from Canada and Mexico took effect, sparking initial risk aversion in the markets. However, sentiment quickly reversed as traders anticipated that the U.S. administration might reconsider its stance on tariffs. Statements from officials within President Trump’s administration suggested a possible strategy shift that could be revealed on Wednesday.
Amid these developments, the European economic calendar appears relatively sparse, prompting traders to concentrate on the upcoming decisions from the European Central Bank, alongside the closely watched U.S. jobs report. This week’s Nonfarm Payroll figures are particularly significant, as they may reveal signs of economic stress among consumers and businesses in light of ongoing trade tensions.
On Wednesday, economic updates including U.S. ADP Employment figures and the ISM Services Purchasing Managers Index will be released. Expectations indicate a slight reduction in job growth, with ADP data projected to drop to 140,000 from 183,000, while the ISM Services PMI is forecasted to decrease marginally from 52.8 to 52.6.
With the ECB expected to lower interest rates by 25 basis points on Thursday, reducing the main reference rate to 2.65%, market participants are anxious to see how this decision will impact the Eurozone economy, which is facing increasing recession risks.
The EURO ’s momentum has resulted in its best performance in over two years, culminating in a two-day gain of 2.4%. However, the currency may face challenges ahead, with notable technical resistance positioned at 1.0635 due to the 200-day Exponential Moving Average. Additionally, indicators suggest the market may be overbought, raising concerns that the buying momentum could soon wane, prompting a potential downturn.
