EUR/USD Boosts On Ukraine Peace Initiative And Rising Fed Dovish Expectations For June Meeting

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EUR/USD Shows Strong Recovery Amid Positive Developments

EUR/USD rebounds sharply after hitting a two-week low, driven by optimism for peace in Ukraine.
Speculation around US tariffs on Canada and Mexico suggests they might be less than initially expected.
Investors are awaiting US Manufacturing PMI data to be announced on Monday.

The EUR/USD currency pair has made a strong comeback, rising to around 1.0485 in the North American trading session on Monday. This recovery follows a dip to a two-week low of 1.0360 last Friday. The Euro (EUR) has shown significant strength, propelled by positive news regarding the ongoing war in Ukraine. During a high-level summit in London over the weekend, leaders including Ukrainian President Volodymyr Zelenskyy and UK Prime Minister Keir Starmer discussed a potential peace plan.

Prime Minister Starmer revealed that European leaders from France, Ukraine, and other allied nations are ready to present a structured peace initiative to the United States for security assurances aimed at supporting Ukraine. The willingness of these leaders to pursue an end to conflict in Ukraine has encouraged market participants, leading to increased confidence in the Euro. Traders believe that a truce could help smooth out disruptions in the Eurozone’s supply chains.

European Central Bank Meeting and Interest Rate Decisions

This week, all eyes will be on the European Central Bank (ECB), with a monetary policy meeting scheduled for Thursday. Experts expect the ECB to cut the Deposit Facility Rate by 25 basis points to 2.5%. This would mark the fifth consecutive interest rate reduction. Traders are increasingly convinced that the ECB will lower borrowing costs again, largely due to concerns that US President Donald Trump’s tariff policies could slow down economic growth in Europe.

If tariffs do indeed harm economic activity, inflation in the Eurozone could remain below the ECB’s target of 2%. Recent data shows that inflation, as measured by the Eurozone Harmonized Index of Consumer Prices (HICP), increased by 2.4% in February, slightly above estimates of 2.3%, but slower than January’s 2.5%. The core HICP, which excludes fluctuating prices, also eased to 2.6%, dropping from 2.7% in the previous month.

Market Dynamics: USD Weakens as EUR Gains

The EUR/USD climb can also be attributed to a significant sell-off in the US Dollar (USD). The US Dollar Index (DXY), which compares the Greenback against six major currencies, has decreased to around 107.70 after reaching a two-week high of 107.65 on Friday. This drop is influenced by reduced fears concerning potential heavy tariffs imposed by President Trump.
Weekend comments from US Commerce Secretary Howard Lutnick indicated that while tariffs on Canada and Mexico are expected, he was uncertain if the rate would be 25% or less as previously mentioned by Trump.
Lutnick confirmed that tariffs would be announced on Tuesday but left discussions about the exact percentage to be resolved by the President and his team. His statements have somewhat calmed investor concerns that initially arose from Trump’s remarks about imposing significant tariffs.
On the US economic front, analysts are noting an increased likelihood of the Federal Reserve (Fed) cutting interest rates during its June meeting. This comes after a drop in Personal Spending data for January, which marked the first decline since March 2023. Currently, there’s a 77% chance of a rate cut in June, up from 63% just a week ago.
This week, traders will also keep an eye on various US economic indicators, particularly the upcoming Nonfarm Payrolls (NFP) data, which will impact expectations regarding the Fed’s monetary policy. On Monday, the focus will be on the ISM and revised S&P Global Manufacturing Purchasing Managers Index (PMI) for February.

Technical Analysis: EUR/USD Nearing Key Levels

The EUR/USD recovery from the two-week low at 1.0360 has brought it close to the 1.0480 mark in Monday’s trading session. The short-term outlook for the pair looks bullish as it has managed to rise above the 20-day Exponential Moving Average (EMA), currently situated around 1.0430.

The 14-day Relative Strength Index (RSI) is fluctuating between 40.00 and 60.00, indicating a sideways trend in the market. Looking at key support and resistance levels, the February 10 low of 1.0285 is a significant support zone, while the high from February 24 at 1.0530 presents a major barrier for those trading the Euro. As the market reacts to upcoming economic news, these levels will be crucial for investors to watch.