The EUR/USD pair opened with a bullish gap during Tuesday’s Asian session, trading around 1.1110, following a sharp decline of over 2.5% in the previous session. The rebound comes as markets digest progress in U.S.-China trade negotiations, which initially bolstered the U.S. Dollar (USD) but now appear to be fueling broader risk appetite.
The Dollar had gained earlier momentum after the United States and China reached a preliminary trade agreement over the weekend in Switzerland. The deal, which significantly reduces tariffs, is being viewed as a key step toward easing global trade tensions. Specifically, U.S. tariffs on Chinese imports will be lowered from 145% to 30%, while China will cut its duties on U.S. goods from 125% to 10%. Markets welcomed the accord, interpreting it as a stabilizing force in international trade dynamics.
Traders are now turning their focus to the upcoming U.S. Consumer Price Index (CPI) data for April, set to be released later Tuesday. Analysts anticipate a month-over-month rebound in both headline and core inflation to 0.3%, from -0.1% and 0.1% respectively. Year-on-year CPI figures are expected to remain unchanged, and the report could provide critical guidance on the Federal Reserve’s next policy steps.
Despite the euro’s short-term rebound, the broader outlook remains clouded by dovish expectations from the European Central Bank (ECB). Sluggish inflation across the Eurozone and persistent trade-related risks have led several ECB officials to float the possibility of further rate cuts.
However, not all policymakers are aligned on additional easing. ECB Executive Board member Isabel Schnabel, speaking at Stanford University on Friday, pushed back against the dovish sentiment. Schnabel argued that current interest rates are appropriate and should remain in neutral territory for now. She also warned that medium-term inflation could exceed the ECB’s 2% target if global disruptions persist—suggesting a more balanced risk outlook.
EUR/USD Outlook
Despite the bullish gap, EUR/USD remains vulnerable to shifts in monetary policy sentiment and macroeconomic data. The pair’s ability to sustain gains above the 1.1110 level will likely depend on today’s U.S. CPI release and evolving ECB commentary. A stronger-than-expected U.S. inflation print could reignite Dollar strength, potentially limiting the Euro’s upside in the near term.
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