The Euro (EUR) is trading near two-month lows against the US Dollar (USD), with EUR/USD quoted around 1.1510–1.1515 on Monday, following a 0.75% sell-off on Friday [3][6]. This weakness comes despite a modest improvement in the Eurozone Sentix Investor Confidence Index, which rose to -13.4 in June from -16.4 in May, but remains deeply negative and below pre-crisis levels [3][6]. The improvement in sentiment has not translated into Euro strength, as EUR/USD continues to face downside pressure, trading below its 20-day EMA at 1.1623, with technical indicators suggesting a bearish bias and potential for further declines towards 1.1411 if 1.1500 support fails [6].
The Euro's struggles are compounded by weak Eurozone data, with German Factory Orders dropping 3.8% in April, significantly worse than the expected 1.2% decrease and following a downwardly revised 4.5% increase in March [2][3]. Meanwhile, the Eurozone faces additional headwinds from surging oil prices, as Brent crude jumped nearly $5 to $96.37 per barrel amid escalating Middle East tensions [3]. These tensions were fueled by Israeli strikes on Iran and retaliatory attacks from Iran-backed Houthi militias, which have also led to threats against US bases in the Gulf and disruptions in the Strait of Hormuz [2][3][7].
The Canadian Dollar (CAD) has also struggled, with EUR/CAD trading higher around 1.6070, despite higher oil prices that would typically support the commodity-linked currency [2]. The CAD's downside is limited by robust domestic employment data, as Canada added 88,000 jobs in May, far exceeding forecasts and reinforcing expectations that the Bank of Canada (BoC) may keep interest rates elevated for longer [2]. However, Brown Brothers Harriman (BBH) expects the BoC to keep its policy rate on hold at 2.25% for a fifth consecutive meeting, maintaining two-way policy optionality due to contained inflation, while swaps markets price in more than 50 basis points of hikes over the next year [1]. BBH sees scope for these rate hike bets to be pared back, which could lead to further USD/CAD upside if technical resistance at 1.3967 is breached [1].
In the US, strong labor market data and steady inflation have bolstered the Dollar. Nonfarm Payrolls rose by 172,000 in May, with April's figure revised up to 179,000, and the unemployment rate holding at 4.3% [3][5][7]. The PCE Price Index for April increased by 0.4% month-on-month and 3.8% year-on-year, in line with expectations [5]. Futures positioning shows USD net longs have more than quadrupled, and the OIS curve suggests markets expect no change at the June Federal Reserve meeting but one rate hike by year-end [5].
The combination of higher oil prices, robust US data, and weak Eurozone indicators has pressured the Euro and supported the Dollar. Silver (XAG/USD) has also declined, trading near $67.00 per ounce, as rising yields and a stronger Dollar offset safe-haven demand from geopolitical risks [7].
Looking ahead, Commerzbank's Rainer Guntermann expects the European Central Bank (ECB) to deliver a 25-basis-point hike on Thursday, the first since September 2023, but sees no back-to-back move in July and anticipates another hike in September. He notes that lower oil prices could eventually ease inflation and open the door for rate cuts in 2027 [2].
CONCLUSION
The Euro remains under pressure amid weak regional data, surging oil prices from Middle East tensions, and strong US economic performance. Market sentiment favors the US Dollar, with expectations for further Fed tightening and continued Eurozone challenges. Unless Eurozone data improves or geopolitical risks subside, the Euro is likely to stay on the defensive.