The EURUSD exchange rate has seen a near-term pause in its rally after rate cut talk.
EURUSD – Daily Chart
EURUSD spiked to 1.110 but has since pulled back. There is resistance higher at the 1.2029 level but there is potential for a retreat to the support at 1.075 first.
The dollar has regained some ground as traders see less positives for the European economies in a trade war.
ECB policy maker Luis De Guindos noted that a trade war would mostly impact economic growth. He added that the disinflation process was continuing and the ECB’s 2% target should be achieved in the coming months. The impact of trade on inflation should be offset over the medium term by lower economic growth.
Traders are selling the euro due to the fears of slower economic growth and the belief that the ECB will cut rates again. The market is currently pricing an 80% chance that ECB would cut its key rate in April. The market is also looking at a total of 60bps of additional cuts over the year.
The downturn in French manufacturing eased in March, according to a recent survey, although the outlook for the sector remains weak due to weak orders. At 48.5, the index is still in contraction mode.
“France’s industry is failing to break out of recession. Despite a significant improvement in the HCOB PMI for manufacturing in March, the situation remains sobering,” said Hamburg Commercial economist Tariq Kamal Chaudhry.
The French President has urged companies to halt all US investment until the tariff situation is clarified.
“Investments to come or investments announced in recent weeks should be suspended until things are clarified with the United States,” Macron said last week.
The currency market could remain volatile as currency flows impact the current exchange rate picture.
