EURUSD EUR/USD

The core of the dynamics for the U.S. Dollar against a basket of other major world currencies remains more complex than the direction of the stock market, where bullish sentiment is now evident. The surge of speculative buying interest to shift more money into the Greenback right the day after the weekend news of the breakthrough between the United States and China had partially subsided by Tuesday. USDJPY quickly jumped from around 145 to above 148 but stopped and retraced from there. Similar patterns are now at NZDUSD and AUDUSD charts. And only the EURUSD case looks more or less simple. The reason here lies deeper than trade contradictions.

After the U.S. Federal Reserve (Fed) meeting ended in vain last week, foreign exchangers are not even quite sure about the launch of borrowing cost cuts even in June. Fed's head Jerome Powell and his comrades stubbornly insisted on uncertainty about the inflation prospects, also citing strong labour data. and they may not immediately become more accommodating during the early stages of the road to concluding trade deals, even though things are clearly getting better with China and the U.K. trade deals, but there is really little clarity in Trump's relations with the European Union, where tariff threats are also his instrument of pressuring on Brussels in approaching Ukrainian peace. The FedWatch Tool now shows more than 90% confidence among futures traders that U.S. interest rates will remain unchanged within the range of 4.25%-4.50% after June 18, but only about 40% bet that Jr Powell will meet Trump's demands to lower rates on July 30. 80% investors feel that the rate cut will begin in September, that's all that we have as given, even if such a rate cut delay would be detrimental to the national and world economy.

Hence, the growing doubts among the market community on whether to buy the U.S. Dollar on this path or better to hold off on immediate decisions are reasonable, at least for commodity-based currencies. The outlook is also unclear with further trade levies against Japanese cars, and this may hint USDJPY from explosive growth, but probably allow the pair to hit slightly above the 150 big figure. As for the interest rate differential with the Euro, if rates in America are lowered in July rather than in June, or even in September, this potentially gives the Greenback a boost, or leaves it just as strong as it is, while European positioning is suppressed by trade troubles.

Meanwhile, and even because of reasons listed above, the prospect of much faster rate cuts in Europe is growing. This makes the single currency an easy target for short-selling at the first convenient opportunity. This EURUSD selling intention may not manifest itself immediately, given the mixed expectations of how exactly the adjustment of trade balances with an increase in the share of American exports to rival countries will affect the U.S. Dollar exchange rate against the currencies of non-EU countries. However, we do not see EURUSD above 1.15, or it may only go there on a wave of some short-term and new-based momentum, while a step-by-step slide down to 1.08 and below looks like a given and only a matter of patience. The EURUSD was treading water around 1.1350 for many days, but quickly slid to 1.1065 this Monday after the U.S.-China deal announcement, but has quickly bounced back to 1.1135 by European lunchtime today.

Pure fundamentally, we agree with Deutsche Bank's current outlines on two possible paths for the European Central Bank's (ECB) interest rates. The ECB is "tipped to slash" borrowing costs at least three more times this year to bring its key deposit rate down to 1.5% by the end of 2025, Deutsche Bank said, while mentioning "two-sided risks" to this estimate. In one scenario, the implementation of "partially-delayed" U.S. tariffs may lead to a "growth shock" in the Eurozone, causing the ECB to bring policy rates below the 1.5% level. Another scenario revolves around broader economic "resilience" to halt an ongoing ECB rate easing cycle before borrowing costs dip to 1.5%. But the baseline idea for the ECB to cut rates by 0.25% in June, September and December. Yet, threats to bond markets after Trump's first announcement on tariffs in early April, there is a chance that the tariffs could be "disinflationary" in the Eurozone, so that the ECB's 1.50% terminal rate might be reached already in September, Deutsche Bank said. Last month, the ECB cut interest rates once again in order to save the EU's economy facing substantial weakness. ECB policymakers noted that both headline and core inflation declined, while the EU services sector's recent price gains also cooled over recent months.