Traders brace for the Fed’s decision as EUR/USD drops, affected by euro sentiment and mixed US data.

    by VT Markets
    /
    Jun 18, 2025
    The Euro has weakened against the US Dollar, with the EUR/USD pair falling to 1.1514 during the American session. Meanwhile, the US Dollar Index remains steady above 98.00. US economic data shows a mixed bag. Retail sales dropped by 0.9% month-over-month in May, but the Retail Sales Control Group saw a 0.4% increase. Industrial production also decreased by 0.2% in May, which was below expectations.

    European Sentiment

    In Europe, sentiment data brings unexpected good news. The ZEW Indicator of Economic Sentiment for the Euro area rose by 23.7 points to 35.3. Eurozone government bond yields are slightly up as traders remain cautious due to the situation in the Middle East. Looking ahead, traders are closely watching the Federal Reserve’s policy decisions for clues about the economic outlook and interest rates. In Europe, attention will turn to new Eurozone inflation data and comments from European Central Bank (ECB) officials, which could provide insights into future ECB policies. The Core Harmonized Index of Consumer Prices (HICP) tracks price changes in the European Monetary Union. Released monthly by Eurostat, it excludes volatile items like food and energy. A high Core HICP is positive for the Euro, while a low reading is negative.

    Euro USD Analysis

    The recent decline in the Euro against the US Dollar indicates increasing strength in dollar buying. The EUR/USD pair’s movement towards 1.1514 suggests a preference for the greenback, partly driven by the steadiness of the US Dollar Index, which is holding above 98.00. This level has become a reliable benchmark for traders. On the macro front, US economic data isn’t providing clear direction. The 0.9% drop in retail sales for May raises concerns about consumer spending. However, the 0.4% increase in the Control Group, which is crucial for GDP calculations, offers some balance. This divergence shows that consumer activity remains strong in essential sectors, even amid broader challenges. The unexpected 0.2% fall in industrial production adds to this mixed picture, as it didn’t meet forecasts. Manufacturing slowdowns often weigh on overall sentiment, but the market’s mild reaction suggests this is being seen as a temporary issue rather than a larger trend. In Europe, positive sentiment has surprised many and adds an unexpected dimension to the overall market tone. The significant rise of over 23 points in the ZEW Indicator to 35.3 reflects renewed optimism among investors. However, this contrasts with a still-weak Euro. The increase in bund yields during this period indicates a cautious but active approach from fixed-income traders. While there’s a glimmer of confidence, geopolitical risks continue to create uncertainty in bond markets. There’s a noticeable difference in how traders are interpreting economic data on each side of the Atlantic. While softness in the US is seen as temporary, the improvement in European sentiment isn’t translating to strength for the Euro. This could indicate skepticism or a delay between data releases and currency reactions. If European figures keep improving, this disconnect could present an opportunity. Looking ahead, key events are on the horizon next week. The Federal Reserve’s decision is a major upcoming trigger. Traders are not only focused on potential policy changes but also on the overall tone of the announcements—will they maintain caution, or will they signal future actions? With rate expectations tightly set, any hints of weaker inflation or employment data could cause short-term volatility in US dollar pairs. On the European front, new HICP data will be scrutinized. The Core HICP, which excludes volatile items, provides a clearer picture of underlying price trends and can significantly influence ECB expectations. A higher reading could apply pressure to increase rates, while a lower figure would likely weaken the Euro, as dovish signals from the central bank would favor the dollar. In times when data sends mixed signals, it’s best to focus on actionable figures rather than forecasts. Current releases—especially regarding core inflation and retail spending—are likely to have more impact on contract directions than general sentiment indicators. Also, the ongoing shift in Eurozone government bonds could accelerate if ECB officials deviate from their usual messages. The comments from these officials next week could shift pricing dynamics, meaning it’s crucial to follow their exact words rather than relying on summaries. We predict some tightening in volatility around the Fed announcement, but after that, options traders should be alert for sharp movements either way. The EUR/USD has recently traded between 1.1470 and 1.1590, and this pattern may shift as new inflation data influences policy expectations. Moreover, this month has seen increased liquidity—particularly during overlapping trading sessions—so any spikes in volume on core data release days should be closely monitored, as they can signal bigger moves in the market. Misinterpreting tone or positioning can lead to exaggerated reactions. Create your live VT Markets account and start trading now.

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