EUR/USD Rises as European Leaders Agree on Ukraine Peace Plan

The EUR/USD pair rebounded from a two-week low as European leaders, including Ukrainian President Volodymyr Zelenskyy, expressed readiness to pursue a peace plan for Ukraine. Over the weekend, UK Prime Minister Keir Starmer hosted a high-level summit in London, where leaders from France, Ukraine, and other allied nations discussed a structured peace proposal to present to the United States to secure security guarantees for Kyiv.

The Euro gained strength across the board as investors viewed a potential truce between Russia and Ukraine as beneficial for the Eurozone’s economic stability and supply chain mechanisms.

Looking ahead, the European Central Bank (ECB) monetary policy meeting on Thursday will be a key event for the Euro. The ECB is widely expected to cut its Deposit Facility Rate by 25 basis points (bps) to 2.5%, marking the fifth consecutive rate cut. Market participants believe the ECB is easing policy to counteract the potential economic slowdown caused by U.S. President Donald Trump’s tariff agenda, which could impact Eurozone growth. Persistently low inflationary pressures in the region also support the case for continued rate cuts.

Meanwhile, Eurozone inflation data for February showed a slowdown. The Harmonized Index of Consumer Prices (HICP) rose by 2.4% year-on-year, slightly above expectations of 2.3% but lower than January’s 2.5%. Core inflation, which excludes volatile items, decelerated to 2.6% from 2.7%, aligning with forecasts.

Market Movers: EUR/USD Strengthens Amid Dollar Weakness

The EUR/USD pair’s recovery from its two-week low of 1.0360 was also fueled by a slight correction in the U.S. Dollar (USD). The U.S. Dollar Index (DXY) retreated to 107.30 from Friday’s high of 107.65, as concerns over severe tariffs on Canada and Mexico eased. U.S. Commerce Secretary Howard Lutnick confirmed that tariffs on North American allies are expected but did not specify if they would reach the anticipated 25% level.

Additionally, expectations of a Federal Reserve (Fed) rate cut in June have risen following weak U.S. Personal Spending data for January, marking its first decline since March 2023. The CME FedWatch tool now suggests a 77% probability of a June rate cut, up from 63% a week ago.

Investors will focus on upcoming U.S. economic data this week, including the Nonfarm Payrolls (NFP) report and Monday’s ISM and S&P Global Manufacturing PMI data, which could influence the Fed’s monetary policy stance.

Technical Outlook: Key Levels to Watch

EUR/USD trades above 1.0400 in Monday’s European session, though the near-term outlook remains bearish as it stays below the 20-day Exponential Moving Average (EMA) at 1.0430. The 14-day Relative Strength Index (RSI) is nearing 40.00, with a drop below this level signaling a potential bearish continuation.

Key support is at the February 10 low of 1.0285, while resistance is at the February 24 high of 1.0530.

Euro Overview

The Euro is the currency of 19 European Union countries and the second-most traded currency globally. It accounts for approximately 31% of all foreign exchange transactions, with EUR/USD being the most actively traded pair. The European Central Bank (ECB) manages the Euro, focusing on price stability by setting interest rates and guiding monetary policy.

Impact of Economic Data on the Euro

Key indicators such as GDP, PMIs, employment figures, and inflation data significantly influence the Euro’s value. Strong economic performance and rising inflation often lead to higher interest rates, strengthening the Euro. Conversely, weak economic data can lead to currency depreciation.

Trade Balance and Its Effect on the Euro

The Eurozone’s Trade Balance, which measures the difference between exports and imports, also plays a crucial role. A positive trade balance strengthens the Euro as demand for European goods increases, while a negative balance can weaken the currency.