Euro Is Under Pressure

The U.S. Dollar Index (DXY) remains subdued near 99.17 points, with the EURUSD trading slightly higher by 0.10% at 1.14050. The pair initially advanced last week on the back of weak U.S. macroeconomic data, including disappointing manufacturing PMI and a sharp drop in ADP Nonfarm Payrolls to just 37,000 for May—the lowest figure since January 2022. This weakness helped propel the EURUSD toward its primary upside target zone of 1.14500–1.15500, reaching as high as 1.14940. The rally was further fueled by a dramatic Twitter feud between Donald Trump and Elon Musk, which added volatility to markets and weighed on the Dollar.

However, the upward momentum was cut short after a phone call between Trump and Chinese leader Xi Jinping, which both sides described as “very good.” Trump was even invited to visit China—a gesture that signaled a possible easing of trade tensions. As a result, the EURUSD slipped back below the 1.14500.

On Friday, the release of stronger-than-expected official Nonfarm Payrolls further supported the U.S. Dollar. May’s jobs report surprised markets with a 139,000 increase in employment, exceeding Wall Street’s forecast of 126,000. This sharp contrast to the weak ADP figure earlier in the week prompted a pullback in EURUSD, which closed at 1.13920.

The second round of U.S.–China trade negotiations began in London this Monday. While American officials have described the talks as positive, China has remained silent, creating a degree of uncertainty in the currency markets. The EURUSD is now stuck near the lower edge of its 1.14500–1.15500 target zone and has tested this level twice in recent days. These moves coincided with another bout of domestic political tension, this time between Trump and California Governor Gavin Newsom. Newsom filed a lawsuit against Trump’s decision to deploy the National Guard in Los Angeles amid ongoing protests.

Despite these distractions, the primary focus for currency traders remains the outcome of U.S.–China negotiations. A breakthrough would likely boost the Dollar. Another key event is the release of U.S. inflation data. Markets expect headline CPI for May to rise to 2.5% year-over-year from 2.3%. If confirmed, such an increase could dampen expectations for imminent interest rate cuts and, in some quarters, might even revive talk of a rate hike. Either outcome would support the Dollar fundamentally.

Nevertheless, institutional investors continue to bet against the Greenback. Last week, another $2.6 million worth of shares in the WisdomTree Bloomberg US Dollar Bullish Fund (USDU)—a fund designed to profit from Dollar strength—were sold. This adds to a pattern of consistent outflows in recent weeks, showing that bearish sentiment toward the Dollar is growing, especially during EURUSD pullbacks.

Given this backdrop, betting on Dollar strength remains risky. The bearish scenario for EURUSD only gains traction if the pair drops and closes below 1.13500. Even then, the potential for a sharp rebound remains high due to prevailing political and economic uncertainties. Conversely, if EURUSD stabilises above 1.14500, the door reopens for a rally toward 1.15500 and possibly a fresh multi-year high above the November 2021 peak at 1.15730.