Dollar bid, euro dumped on US-EU trade deal
Updated Updated Mon, 2025 July 28 09:10
* Trump: Global baseline tariff will likely be 15% to 20%
* US-EU trade deal seen as “significant” burden on eurozone
* Euro suffers steepest one-day drop against dollar since May
* US stocks mixed as investors eye earnings and multiple risk events
FX: USD saw broad gains after the US-EU trade agreement. We dive into the deal below. Otherwise, markets look ahead to a bumper week of data and events including the FOMC meeting and US GDP on Wednesday, core PCE inflation data on Thursday and the monthly US jobs report on Friday.
EUR got hit and suffered its worst single day versus the dollar since mid-May. The 15% tariff on most US imports from the EU was initially seen as acceptable by some EU politicians, but there were increasing questions over detail, implementation and the one-sided nature of the agreement, very much in favour of the US. That said, the ECB should welcome the removal of some uncertainty, so we will be watching how policymakers respond in the coming days. Data comes thick and fast this week with important GDP and inflation figures.
GBP outperformed most of its peers except the loonie and yen, though cable is fell through recent support around 1.3386 and looks bearish. Macro drivers for the UK are light aside from PM Starmer meeting President Trump for wide-ranging talks in Scotland, where they are expected to discuss progress on implementing the UK-US trade deal. The data slate is a light one for the UK this week, in contrast to the EU and US.
JPY softened versus the dollar as the major neared the mid-July top at 149.18. The 200-day SMA sits above here at 149.53. The BoJ meeting is front and centre with many expecting hawkish signals for a rate hike after the summer, likely in October. The US-Japan trade deal has given some relief and more certainty for rate setters, while there could be upward revisions to inflation forecasts.
AUD dipped for a third day in a row. The Antipodeans underperformed as the risk mood waned. The bottom of the gently sloping upward bull channel is being challenged. CAD outperformed all other majors as attention turned to the BoC/FOMC decision day on Wednesday. The BoC meeting also includes a Monetary Policy Report and economic forecast updates. No policy changes are expected with the economy showing signs of resilience.
US stocks: The S&P 500 printed up 0.02% at 6,389. The Nasdaq settled higher, by 0.36% at 23,356, another new all-time closing top. The Dow Jones finished down at 44,838, losing 0.14%. Only three sectors were in the green, with Consumer Discretionary, Tech and Energy the gainers. The latter was buoyed by firmer crude prices after President Trump announced he is going to reduce Russia’s 50-day deadline for peace to Ukraine to 10 or 12 days from today. Real Estate, Materials and Utilities were the laggards, losing over 1%. We get key Big Tech earnings this week in the shape of Meta and Microsoft on Wednesday and Amazon and Apple on Thursday, after the US closing bells.
Asian stocks: Futures are mixed. APAC equities were mostly mixed as well despite an early driver from the US-EU trade deal. The ASX200 was limited amid some global uncertainty. The Nikkei 225 fell as domestic headwinds came to the fore again. PM Ishiba’s future was cast in doubt while the BoJ meeting and a resumption of rate hikes after summer was in focus. The Shanghai Comp and Hang Seng were mixed ahead of US-China trade talks and the 90-rolling truce date.
Gold fell for a fourth straight day as the dollar surged higher. Prices in bullion dipped below the 50-day SMA at $3,335, which has capped the downside through this year. The long-term upward trendline from the December lows has also been broken.
Day Ahead – US jobs data
US JOLTS figures are released Tuesday, which kick off the build-up to Friday’s monthly non-farm payrolls data. Job Openings are watched by policymakers at the Federal Reserve making them important, while the quit rate has a high correlation to wage growth numbers. JOLTS for June are expected to show a drop from May’s surprisingly strong 7.77 million openings. If the figure drops under seven million, investors could worry about the resilience of the labour market. An outcome above eight million would boost sentiment with hopes of a solid employment report at the end of the week.
Expectations are for a lower headline print on NFP, in line with a cooling jobs market. But it is not collapsing, which tallies with a likely Q2 GDP print of around 2.5%+ when Q” figures are released on Wednesday. In fact, with immigration under pressure going forward, the risks are tilted towards a lower unemployment rate and participation.
Chart of the Day – Dollar Index rises above resistance
The greenback jumped higher to kick off a jam-packed week of major risk events. The EU-US trade agreement was greeted with “buy the rumour, sell the fact” type price action as the euro got sold through the morning session. It makes up around 56% of the Dollar Index, so has by far the biggest weighting in the index. European reaction to the deal got decidely more irritated through the day as there was little detail about the deal, and one-way 15% tariffs with no levies on US goods into the single market. French Presient Macron was said to be displeased and Germany’s Merz warned of the major impact on its economy. Q2 US GDP is expected to rebound when released later this week, while PCE inflation could prove sticky, which could both support the buck.
Will the Fed signal a modestly more dovish bias to hit the dollar? Or NFP rollover with a sub-100k print? For now, USD has risen sharply and has broekn higher above the 50-day SMA, which has acted as resistance this year. Above here is a resistance zone including a major long-term swing low from July 2023 at 99.57 and the first Fib retracement level of this year’s sell-off at 99.63. Near-term support are last week’s lows just above 97.
