Geopolitical Shenanigans Are Dominating the Markets, Pushing Aside Solid Economic Data!
The EUR/USD currency pair is currently hovering near its recent peaks, experiencing a slight dip to approximately 1.1740 on Friday. Despite this minor retreat, it's managing to hold onto most of the gains from the previous day and is on track for its most robust weekly performance since June. The Eurozone's preliminary Purchasing Managers' Index (PMI) data didn't exactly give the Euro a significant boost, yet the pair remains resiliently close to multi-week highs. Why? A significant factor is the ongoing saga of US President Trump's fascination with Greenland, which continues to cast a shadow over the US Dollar.
But here's where it gets controversial... President Trump made some rather bold statements on social media, claiming he had secured "total and permanent access" to Greenland through a deal with NATO. This followed remarks at the Davos World Economic Forum, where he seemed to backtrack on using military force against NATO allies and even withdrew threats of tariffs against Eurozone countries. This shift in rhetoric, while seemingly positive for transatlantic relations, has created a ripple effect in the currency markets.
On the economic front, the United States released a mixed bag of data. Q3 Gross Domestic Product (GDP) figures exceeded expectations on Thursday, and the weekly Initial Jobless Claims rose by less than anticipated. Furthermore, the Personal Consumption Expenditures (PCE) Price Index indicated higher inflationary pressures in November, which aligns with the US Federal Reserve's stance on maintaining steady interest rates. And this is the part most people miss: despite this generally positive economic picture for the US, the market largely shrugged it off, with geopolitical tensions taking center stage.
Let's take a look at how the Euro has been performing against other major currencies today. You can see in the table below the percentage changes:
| | USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
|---|---|---|---|---|---|---|---|---|
| USD | 0.05% | -0.07% | -0.32% | -0.01% | -0.13% | 0.07% | 0.07% |
| EUR | -0.05% | | -0.12% | -0.37% | -0.07% | -0.19% | 0.01% | 0.02% |
| GBP | 0.07% | 0.12% | | -0.23% | 0.06% | -0.07% | 0.14% | 0.14% |
| JPY | 0.32% | 0.37% | 0.23% | | 0.32% | 0.19% | 0.37% | 0.39% |
| CAD | 0.01% | 0.07% | -0.06% | -0.32% | | -0.13% | 0.07% | 0.08% |
| AUD | 0.13% | 0.19% | 0.07% | -0.19% | 0.13% | | 0.20% | 0.22% |
| NZD | -0.07% | -0.01% | -0.14% | -0.37% | -0.07% | -0.20% | | 0.00% |
| CHF | -0.07% | -0.02% | -0.14% | -0.39% | -0.08% | -0.22% | -0.00% | |
Interestingly, the Euro showed the most strength against the Swiss Franc. The heatmap visually represents these percentage changes, with the base currency on the left and the quote currency on the top. For instance, the box where EUR and USD intersect shows the change of EUR against USD.
Daily Digest Market Movers: EU-US Tensions Take a Toll on the US Dollar
The US Dollar Index (DXY) is currently languishing near three-week lows. This is largely due to the strain in the relationship between the US and the EU, its primary trading partner, exacerbated by the Greenland issue. This friction is eroding confidence in the US as a global leader and, consequently, impacting the US Dollar's status as a reserve currency.
However, there was a brief period of improved market sentiment after President Trump softened his rhetoric towards the European Union, leading to a temporary relief rally. Despite this, the underlying damage to transatlantic relations is significant, and the US Dollar is bearing the brunt of it, at least for the time being.
Let's delve into the Eurozone's economic data. The flash PMI for the Services sector remained steady at 51.6 in January, mirroring December's figure and meeting market expectations. The Manufacturing PMI showed some improvement, rising to 49.4 from 48.8 in December, surpassing the consensus of 49.0. However, it's crucial to note that readings below 50 still indicate a contraction in the manufacturing sector.
German PMIs, released earlier, also offered a more positive picture than anticipated. The services sector's activity climbed to 53.3 from 52.7, exceeding the expected 53.0. The Manufacturing PMI in Germany rose to 48.7 from 47.0, beating expectations of 48.0, but, again, remaining in contraction territory.
Now, here's a thought-provoking question for you: Given that the US has strong economic data, why do you think geopolitical events are having such a disproportionate impact on the currency markets? Do you believe the US Dollar's status as a reserve currency is truly under threat, or is this a temporary blip? Let me know your thoughts in the comments below!
Back to the US data, which was indeed supportive of the dollar. The Q3 GDP was revised upwards to an annualized growth of 4.4%, a notable increase from the previous 4.3% estimate and the 3.8% growth seen in Q2. The PCE Price Index accelerated to 2.8% year-on-year in November, as expected, with the core PCE Price Index showing similar trends. Additionally, US Initial Jobless Claims for the week of January 17th rose to 200K, a slight increase from the revised 199K of the previous week, but still significantly below the 212K anticipated by the market. The S&P Global preliminary Services PMI in the US is also projected to tick up to 52.8 in January from 52.5 in December.
Technical Analysis: EUR/USD Faces Resistance Around 1.1765
The EUR/USD pair is currently pulling back from the vicinity of a key resistance level at 1.1765. Technical indicators on the 4-hour chart are also showing a downward trend. The Relative Strength Index (RSI) has dipped to 60, moving closer to the neutral zone, and the Moving Average Convergence Divergence (MACD) histogram is contracting, suggesting a weakening upward momentum.
On the downside, immediate support is seen around 1.1725, with no clear support levels until Thursday's low at 1.1670. Above the resistance at 1.1765 (which marks the highs from January 2nd and 20th), the next significant target for the pair would be the December 24th high at 1.1808.
Understanding the Manufacturing PMI: A Key Economic Indicator
The HCOB Manufacturing Purchasing Managers' Index (PMI), released monthly by S&P Global and Hamburg Commercial Bank, serves as a crucial leading indicator for business activity in the Eurozone's manufacturing sector. This index is compiled from surveys of senior executives in private-sector manufacturing companies. The responses reflect the month-over-month changes in business conditions. Importantly, PMI data can provide early insights into trends that will later appear in official statistics like Gross Domestic Product (GDP), industrial production, employment, and inflation.
The PMI index ranges from 0 to 100. A reading of 50.0 signifies no change from the previous month. When the index is above 50.0, it indicates general expansion in the manufacturing economy, which is typically seen as a positive sign for the Euro (EUR). Conversely, a reading below 50.0 suggests a general decline in activity among goods producers, which is considered bearish for the EUR.
Here are the latest figures for the HCOB Manufacturing PMI:
- Last Release: Friday, January 23, 2026 (Preliminary)
- Frequency: Monthly
- Actual: 49.4
- Consensus: 49.0
- Previous: 48.8
- Source: S&P Global
Final thought-provoking question: Considering that the Manufacturing PMI is still in contraction territory (below 50), but showing improvement, how much weight should the market truly give to this indicator versus the more immediate geopolitical headlines? Do you think a sustained move above 50 is necessary for the Euro to see significant upside?
