EUR/USD: A full menu for traders today

The intense questions surrounding the US budget are weighing on the dollar. This is likely to worry investors, and these fears are having an impact on the bond market. The yield on the 10-year US Treasury bond is rising to 4.52%, and the yield on the 30-year bond is hovering above the symbolic 5% threshold.

At the same time, short-term selling forces are beginning to take hold on the euro, which remains a fine barometer of risk appetite.

Of course, trading rooms didn't wait for Moody's decision to downgrade the US sovereign rating to take a critical look at the public finances of the world's largest economy. They are even accustomed to putting this type of decision by a rating agency into perspective. Nevertheless, the market psychology of the greenback has been undermined.

On Tuesday, Trump visited Congress, urging Republican lawmakers to support his "great and beautiful bill," while significant divisions within the president's party are slowing down the review of this tax bill.

However, this sweeping tax reform could lead to an increase in the US debt, which is already at the unsustainable level of $36 trillion. "President Trump's tax bill has intensified concerns about long-term fiscal sustainability, particularly after Moody's decision to downgrade the US sovereign credit rating on Friday," says Konstantinos Chrysikos of Kudotrade.

The maximum rating, "Standard & Poor's had withdrawn it in 2011, followed by Fitch in 2023. Moreover, the arguments put forward by Moody's to justify this downgrade are already relatively well-established in investors' minds: soaring debt, widening budget deficits, and rising cost of debt," according to Thomas Giudici, Head of Asset Management at Auris Gestion.

The rating agency stripped US debt of its precious Aaa rating and downgraded it to Aa1 with a stable outlook.

"Above all, US credit indicators are now significantly different from those of countries still rated Aaa by the agency. For example, interest payments - including federal, state, and local government debt - represented 11% of US government revenue in 2024, compared to only 1.7% for the average of other countries with the highest rating."

The German component of the German Services PMI was significantly disappointing, with the initial estimate for the current month at 47.1 (2.5 points below the target).

"The eurozone economy is struggling to regain its footing. The composite PMI index, which had shown only weak signs of recovery since January, highlights a return to contraction in the region's private sector in May. However, this decline in activity is not the result of US tariffs. The implementation of these new tariffs has rather favored a slight recovery in industrial activity recently," explains Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank.

"Manufacturing production increased for a third consecutive month, while for the first time since April 2022, the volume of new orders received by manufacturers did not decrease. However, in the services sector, which is less exposed to changes in US trade policy than the industrial sector (with the exception of specific activities such as international logistics), activity declined for the first time since November 2024. While the volume of new business from abroad declined, it is weak domestic demand that appears to be the main drag on the sector's performance."

The IFO business climate index in the Eurozone's largest economy (87.6) remains under pressure but does not deviate significantly from the consensus.

Watch the US PMIs at 15:45 (EU time) and the essential weekly jobless claims at 14:30.

Right now, the EUR/USD is trading at $1.1296.

KEY CHART ELEMENTS
The currency pair is currently passing the highly important chart test of the 50-day moving average (in orange). A breather is needed before new highs can be reached. This means the formation of several support points on this trendline.

MEDIUM-TERM FORECAST
In light of the key chart factors we have mentioned, our medium-term view on the EUR/USD is neutral.

We will maintain this neutral view as long as the EUR/USD pair is positioned between the support at $1.1202 and the resistance at $1.1460.