EURUSD Rebounds to 1.0850 Amid Mixed European PMI Data and Easing Tariff Concerns.
The EURUSD currency pair has regained strength and climbed to 1.0850 on Monday after briefly dipping below the 1.08 level last week. This recovery comes as market sentiment improves following new developments in global trade policy, particularly regarding the United States’ stance on reciprocal tariffs. In addition, mixed PMI data from key European economies, including Germany, France, and the broader Eurozone, have influenced trading dynamics.
The recent price action suggests that EURUSD has found a temporary support level above 1.08, as traders digest the latest economic data and political statements. The focus now shifts to upcoming US economic reports, including the S&P Global PMI data, which could further impact the pair’s direction.
Key Market Drivers: PMI Data and Tariff Discussions.
Two major factors have influenced EURUSD’s price movement at the start of the week: economic indicators from Europe and shifting trade policies in the United States.
1. European PMI Data: A Mixed Performance
Purchasing Managers’ Index (PMI) data is a critical economic indicator that reflects the health of the manufacturing and services sectors. The preliminary PMI readings for March have shown a varied performance across the Eurozone’s largest economies:
France:
The Services PMI rose to 46.6, surpassing both the expected 46.3 and February’s 45.3.
The Manufacturing PMI jumped to 48.9, exceeding the forecast of 46.2 and the previous month’s 45.8.
While these numbers indicate improvement, they still remain below the 50.0 threshold, which separates contraction from expansion.
Germany:
The Services PMI declined to 50.2, missing the expected 51.4 and falling below February’s 51.1 reading.
However, the Manufacturing PMI improved to 48.3, beating the 47.7 forecast and the previous 46.5 reading.
Germany’s overall performance suggests that the manufacturing sector is stabilizing, but services have shown signs of weakness.
Eurozone Overall:
The Services PMI fell to 50.4 from 50.6, missing the 51.0 forecast.
The Manufacturing PMI climbed to 48.7, higher than February’s 47.6 and beating expectations of 48.0.
While these figures do not signal a robust recovery, the improvement in manufacturing is a positive development for the region. Investors will be looking for more consistent data in the coming months to confirm whether Europe is on a path toward sustained economic growth.
2. US Trade Policy Shift: Softer Tariff Measures Expected
One of the key drivers of the EUR/USD recovery is the recent shift in US trade policy. On Monday, US officials indicated that upcoming reciprocal tariffs would be sector- and country-specific, rather than broad-based as previously announced by former President Donald Trump.
This announcement has provided relief to financial markets, as investors were concerned that sweeping tariffs could escalate trade tensions, disrupt global supply chains, and harm economic growth. Instead, a more targeted approach reduces the risk of major economic disruptions and allows for negotiations to de-escalate trade disputes.
The softened stance has led to increased risk appetite in the market, boosting equities and stabilizing currency movements. With investors feeling more confident, the EUR/USD has managed to recover from last week’s selling pressure.
Upcoming Market Events and Their Impact on EURUSD.
With European PMI data released and trade policy concerns somewhat alleviated, traders are now focusing on key upcoming events that could influence the EURUSD pair further.
1. Chicago Fed National Activity Index (12:30 GMT)
The February reading of the Chicago Fed National Activity Index will be released.
The previous reading stood at -0.03, and while no forecast is available, a stronger-than-expected number could provide some support to the US dollar.
2. US Preliminary PMI Data (13:45 GMT)
The US S&P Global Manufacturing PMI is expected to decline from 52.7 to 51.9.
The US Services PMI is forecast to rise slightly from 51.0 to 51.2.
If these figures come in stronger than expected, the US dollar could gain ground, putting downward pressure on EUR/USD. However, weaker data could reinforce expectations that the Federal Reserve will keep rates on hold, supporting EURUSD.
3. Federal Reserve’s Michael Barr Speech (19:10 GMT)
Vice Chair for Supervision Michael Barr is set to speak about small business lending in Washington, D.C.
While the discussion is not directly related to monetary policy, any comments on financial stability and credit conditions could influence market sentiment and Fed rate expectations.
Market Sentiment and Broader Trends
1. Stock Market Rally
Global equity markets are experiencing a strong rally on Monday.
European indices are up nearly 0.5%, while US futures show the Nasdaq leading with a gain of over 1% before the market opens.
The reduced concerns over broad-based tariffs have contributed to this bullish sentiment.
2. Federal Reserve Rate Expectations
The CME FedWatch Tool indicates an 85.1% probability that the Federal Reserve will keep interest rates unchanged at its May meeting.
The likelihood of a rate cut remains low at 14.9%.
This suggests that traders are not expecting any immediate policy changes from the Fed, which could keep EUR/USD range-bound in the short term.
3. US Treasury Yields
The US 10-year Treasury yield is currently trading around 4.289%.
After last week’s correction, bond yields appear to be stabilizing, with investors looking for further direction from upcoming economic data.
Technical Outlook: Can EURUSD Hold Above 1.08?
From a technical perspective, the EURUSD pair has managed to bounce back above 1.08, but whether this recovery is sustainable remains uncertain.
Support Levels:
The key support remains at 1.0800, a psychological level that was briefly broken last week.
If the pair drops below this level again, further downside toward 1.0750 could be possible.
Resistance Levels:
The first resistance is at 1.0870, followed by 1.0900.
A decisive break above these levels could open the door for further upside toward 1.0950.
Momentum Indicators:
The Relative Strength Index (RSI) is hovering around the neutral 50 level, indicating a lack of strong momentum in either direction.
The Moving Averages show mixed signals, with short-term moving averages suggesting a possible continuation of the recovery.
If upcoming US data disappoints, EURUSD could extend its gains toward 1.09. However, stronger US economic indicators could trigger renewed selling pressure, bringing the pair back toward the 1.08 level.
Conclusion: A Cautious Recovery with Key Risks Ahead.
The EURUSD pair has managed to recover to 1.0850, supported by easing trade concerns and a mixed but generally stable PMI report from Europe. However, the sustainability of this recovery depends on several upcoming economic indicators, particularly the US PMI data and comments from Federal Reserve officials.
While the immediate risk of broad-based US tariffs has diminished, the market remains cautious about future trade policies and their impact on global economic growth. Additionally, the Federal Reserve’s stance on interest rates will continue to play a key role in shaping currency movements.
For now, EURUSD traders should keep an eye on key support and resistance levels, with a focus on upcoming economic data releases that could determine the pair’s next major move. Will the pair break above 1.09, or is another test of 1.08 on the horizon? The coming days will be crucial in setting the tone for EURUSD’s next direction.
