The Euro extends losses against the US Dollar on Monday, slipping into negative territory and trading near 1.1845 at the time of writing. This pullback comes despite broadly encouraging economic data from the Eurozone, as the Greenback remains supported by political clarity around the future leadership of the Federal Reserve and a generally risk-averse market environment that favours the US Dollar.
Market sentiment toward the Dollar improved after US President Donald Trump confirmed on Friday that Kevin Warsh will succeed Jerome Powell as Chair of the Federal Reserve when Powell’s term ends in May. The announcement eased recent investor anxiety surrounding the Fed’s independence and future policy direction. While Warsh has argued in favour of a smaller Fed balance sheet and has recently supported lower borrowing costs, he is also seen as an institutional figure likely to approach inflation risks with caution. This perception has helped stabilise the Dollar after its recent weakness.
At the same time, risk-off conditions across global markets are weighing on the Euro, limiting its ability to capitalise on positive regional data. Investors appear reluctant to increase exposure to risk-sensitive currencies ahead of a dense economic calendar later in the week, reinforcing demand for the relative safety of the Greenback.
In the Eurozone, final HCOB Manufacturing PMI figures for January surprised modestly to the upside. The headline Eurozone index was revised higher to 49.5, edging closer to the 50 threshold that separates contraction from expansion, and improving from December’s 48.8 reading. Germany, the bloc’s largest economy, also saw its manufacturing PMI revised up to 49.1, compared with a preliminary estimate of 48.7 and unchanged levels reported in the prior month. These revisions suggest that manufacturing conditions, while still subdued, are stabilising faster than initially anticipated.
Despite these encouraging signals, the Euro struggled to attract sustained buying interest, as broader macro and event risks remain in focus. Attention now turns to the release of US Manufacturing PMI data later in the session, which could further influence short-term Dollar dynamics.
Looking ahead, traders are likely to stay cautious as markets brace for a pivotal week. Key events include the European Central Bank’s monetary policy decision on Thursday and the highly anticipated US Nonfarm Payrolls report on Friday, both of which could inject significant volatility into EUR/USD and shape expectations for monetary policy on both sides of the Atlantic.
Trade Idea:
Sell EUR/USD on rebounds toward 1.1880, targeting 1.1750, with a stop above 1.1940, as risk aversion and Fed leadership clarity continue to support the US Dollar.