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Can European Industry Offset Rising Energy Trade Deficits?
Euro seems bullish during the start of the week, fueled by a rise in Industrial Production data at 0.4% from 0.3% forecast. Wholesale Price Index from Germany and CPI (Consumer Price Index) from Spain and France all increased.
Euro is being dragged down by energy costs affecting the industries. Previously, we expected growth from Spain and Italy with 0.8% and 2.3% growth contribution to the Euro Area coming from high-end manufacturing exports and tourism respectively.
The IMF (International Monetary Fund) has revised its growth forecast for the region. It gave us an insight that a possibility to become severe to loom if energy markets will not remain stable by 2027 and the fund visualize global growth to drop at 2% while central banks remain forced into a hawkish stance to curb persistent inflationary pressures.
A better outlook for peace in the Middle East has become one of the main drivers for the Eurodollar’s recovery. U.S. and Iran moving toward a diplomatic freeze, investors are abandoning the safety of the Dollar in favor of riskier assets, reversing the flight-to-quality trend seen earlier in the crisis.
What are the economic indicators which can affect the pair?
EUROZONE INFLATION RATE
Inflation in the Eurozone is rising quickly. Last month it was 0.6%, but today’s final report confirms a jump to 1.2% (the highest in over three years). Energy prices are the main culprit. Tensions in the Middle East have caused oil and gas costs to surge by nearly 7% in a single month. If inflation hits the forecast, the EUR/USD is currently hovering around 1.1800 as high inflation forces the ECB (European Central Bank) to keep interest rates high, which would likely push the Euro even higher Euro has a 75% chance of increasing in value.
EUROZONE BALANCE OF TRADE
Recent trade numbers were unexpected showing a loss of 1.9 billion euros. This was supposed to be a surplus of 12.8 billion euros. The main reason for this difference was a drop in machinery and vehicle sales. Profits in these areas fell to 1.6 billion euros.
High energy import costs are currently erasing Europe’s trade gains. The money spent on foreign oil and gas is essentially absorbing the profits typically generated by the region’s car and machinery exports.
Trade deficits generally put downward pressure on the Euro. A return to a multi-billion-euro surplus in tomorrow’s release could act as a catalyst for a Euro rally. If we see some revisions, that will mean that high energy prices are causing for the economic recovery.
US INDUSTRIAL PRODUCTION
Output from factories and mines in the United States is still going up which means positive. It recently went up by 0.2 percent. This is more, than what people thought it would be which was 0.1 percent. This quiet resilience gives the US Dollar an edge over the Euro, which is struggling with more volatile industrial shifts. However, the market’s reaction has been cautious, investors seem to be treating this small win as a placeholder while they wait for more definitive economic signals.
What trend do we expect to see from the pair?
The pair currently at 1.18124 suggesting a bullish trend, with higher possibility to break the 1.18865.
- The resistance for the 4HR chart shows at 1.17931 which was in between the closing price for the month end of February and opening price during the start of the war in the Middle East last February.
- Resistance 1 1.18294 (near the price we saw during the last week of February 2026. That was days before the war started).
- Resistance 2 1 1.18865 to 1.19272. This is near the highs we saw before the war back in February 2026. The level was during pre-war highs.
- Support 1 1.17784 (near the 20-SMA)
- Support 2 1.16979
- RSI (Relative Strength Indicator) at 71.36 suggesting price correction.
While other factors are supportive, the Euro's upside remains tethered by ongoing struggles within the industrial sector, which has yet to show signs of a meaningful recovery while resilient U.S. labor market is shielding the Greenback from further losses, keeping EUR/USD trapped in a sideways grind and stalling the pair’s recent bullish momentum.
Despite a dip in some price components, the ECB (European Central Bank) is staying the course on restrictive rates, staying heedful of the energy-driven spike that saw March inflation hit 2.5%. Its consistent messaging and the updated 2.6% forecast for 2026 offer a degree of certainty that is currently sustaining Euro demand. As interest rates are set to hold within the 3.50%–3.75% corridor, the Federal Reserve has transitioned into a diligent observational phase. This allows the FOMC to evaluate the compatibility of a tight labor market with a disinflationary trend, while assessing if energy price volatility will force a higher-for-longer terminal rate through 2026.
Conclusion & The ACY Edge
Expect a slow but steady rise for the EUR/USD. The Euro holds the edge, but the Dollar’s decline remains slow due to weak industrial growth in Europe. Trading above the 1.1800 level is the key factor that will set the tone for the rest of the quarter.
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