EUR/USD rises as risk sentiment pushes euro toward 1.1700

Key Moments

Risk-On Mood Pressures the US Dollar

The EUR/USD pair is trading firmly higher around 1.1700 in Wednesday’s European session, advancing approximately 0.75%. The move reflects broad US Dollar (USD) underperformance as investors favor risk-oriented assets.

Market sentiment improves following a temporary easing of tensions between the United States and Iran. US President Donald Trump stated that he has suspended planned strikes on Iranian civilian infrastructure after Tehran agreed to reopen the Strait of Hormuz. This development has reduced safe-haven demand for the Greenback and bolstered higher-yielding and risk-sensitive assets.

US Dollar Performance Against Major Currencies

The report notes that the US Dollar was weakest against the New Zealand Dollar during the session. The following description explains how the referenced heat map of currency moves is structured.

For example, choosing the US Dollar from the left column and moving horizontally to the Japanese Yen cell displays the percentage move in USD (base)/JPY (quote). According to the article, on the day in focus the US Dollar showed its weakest performance against the New Zealand Dollar.

Equity Futures and Dollar Index Reflect Improved Sentiment

In European trading, S&P 500 futures are reported up more than 2.5% to near 6,780, illustrating robust risk appetite. At the same time, the US Dollar Index (DXY) – which tracks the USD versus six major peers – trades 0.7% lower around 98.80, reinforcing the picture of a softer Greenback.

Eurozone Data: Retail Sales Slip in February

On the macroeconomic side, Eurozone Retail Sales declined 0.2% month-on-month in February. This drop was in line with market expectations and represented a faster contraction than the previous 0.1% decrease. The data add a modest headwind to the Euro’s fundamental backdrop, even as positioning and risk sentiment currently dominate EUR/USD price action.

Looking ahead, market participants are expected to monitor developments in talks between the United States and Iran over the 10-point proposal submitted by Tehran for a full ceasefire. Progress or setbacks in these negotiations could further influence global risk sentiment and, by extension, the US Dollar and EUR/USD.

EUR/USD Technical Outlook

EUR/USD is trading sharply higher around 1.1700 at the time of writing. The short-term technical bias is described as bullish, with spot extending above the descending support trend line of a Symmetrical Triangle pattern traced from 1.1403. The pair is also holding above the 200-day exponential moving average (EMA), clustered near 1.1560, suggesting buyers are still defending pullbacks.

Momentum indicators support this constructive view. The latest Relative Strength Index (RSI) reading at 57 signals positive momentum without indicating overbought conditions, backing the upward tilt that followed the rebound from the mid-1.14 area.

According to the article, a decisive move above the March high near 1.1800 would confirm an extension of the nascent upswing, whereas a drop below the 1.1600 support area and the 200-day EMA would expose the 1.1550 region on the downside.

Background on the US Dollar

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.

Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.

When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.

It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.