- EUR/USD added to Friday’s gains and surpassed the 1.1400 barrier.
- The US Dollar retreated modestly on the back of easing trade concerns.
- US markets were closed on Monday due to the Memorial Day holiday.
On Monday, the Euro (EUR) gained further momentum, sending EUR/USD back above the 1.1400 hurdle, or four-week tops, and opening the door to extra gains in the short-term horizon.
On the opposite side of the road, the US Dollar (USD) maintained its bearish performance for the second day in a row, this time prompting the US Dollar Index (DXY) to recede to multi-week troughs in the sub-99.00 region.
Meanwhile, volatility in the FX galaxy remained low, and trading conditions were thin due to inactivity in the US markets caused by the Memorial Day holiday.
Renewed trade optimism provides support to EUR
The renewed and strong upside bias in the single currency came after President Trump said he was postponing his planned 50% tariffs for the Euroland until July 9, while EU leaders have voiced expectations for a fast settlement to end the trade conflict with the US.
In fact, following what he described as a “very nice call” with the European Commission, Trump said on Sunday he would halt the border tax due on June 1, which he had announced two days earlier.
Furthermore, Ursula von der Leyen convinced Trump to postpone the responsibilities by more than a month so that the two parties may have more time to talk.
In the broader picture, the lack of follow-through in the recently announced trade deals between the United States and China and the United States and the United Kingdom seems to have depressed the Greenback and given the Euro and other risk-sensitive currencies some breathing space.
Divergence in policies leaves markets wondering
The Federal Reserve (Fed) and the European Central Bank (ECB) continue to shape the FX scene.
Despite markets pricing in two rate cuts before year-end—potentially beginning as early as September—due to moderate April inflation and declining trade tensions, the Fed kept rates unchanged this month.
Last month, the ECB dropped its deposit rate by 25 basis points to 2.25%; in June, it could soften much more. Officials are still careful, though. While Mario Centeno said that rates could have to drop below the neutral range of 1.50%–2.00% to maintain inflation and GDP, Isabel Schnabel and Klaas Knot have underlined external uncertainty and the need for further data.
Speculators gamble on the Euro.
Speculative net long holdings in the Euro dropped to four-week lows near 74.5K contracts based on the most recent CFTC data for the week ending May 20. Total open interest also rose to nearly 760K contracts for the first time since December 2023. Commercial traders also trimmed their net shorts to multi-week lows, which suggests institutions are viewing things more cautiously.
The technical picture: Potential for further gains
Technically, should EUR/USD keep rising, the next significant objectives are the April high at 1.1572, followed by the 1.1600 milestone and the October 2021 top at 1.1692.
On the downside, first support shows at the interim 55-day SMA at 1.1133, then the May low at 1.1064, and lastly the important 1.1000 contention zone. A break below that would put the 200-day SMA at 1.0808 back into focus.
There are flashing yellow momentum indications. While the average directional index (ADX)—near 25—shows the present trend is still in place but losing velocity, the RSI has climbed to nearly 60, suggesting building bullish vigour.
EUR/USD daily chart
