In May, the EUR/USD pair dropped by more than 2.65% as the dollar strength continued. The decline was attributed to the political risks in the EU and the risks about trade. It was also attributed to a slightly dovish ECB.
This month, the issue of trade will continue being a thorn in the flesh for the pair. Yesterday, the Trump administration said that it would impose tariffs on goods from some of the country’s biggest allies including the European Union, Canada, and Mexico. The tariffs on steel and aluminum will also apply to China.
This month, there is a possibility that the EUR/USD pair will recover from some of its losses. In Italy, the two populist parties – Five Star and League – have entered into negotiations to form a government after their economy minister was vetoed by the president. Yesterday, the EU released impressive unemployment data. The unemployment rate in the region was at 8.5%, which was the lowest since 2009. In addition, the region’s consumer prices increased by 1.9%, which was higher than expected and higher than the estimates. Therefore, there are signs that the ECB could move to wind down QE and start raising rates in September.
The pair is now trading at 1.1675, which is higher than the 1-month low of 1.1509. The pair is trading in line with the 50 and 30-day moving average. With economic data being supportive of the EU, there is a possibility that the pair will move higher this month. As such, traders should look out for the 1.2000 level, which is also the 50% Fibonacci Retracement level.