EUR/USD saw a slight increase of 0.18% on Friday, even with low trading volumes due to the US Independence Day holiday. As the week ends, the currency pair stands at 1.1778, marking a 0.53% rise, supported by strong US economic data. Attention turned to tariff issues when US President Donald Trump revealed new tariffs ranging from 10% to 70%, starting August 1. Tensions between Europe and the US grew as Washington imposed a 17% tariff on European food imports.

Trade Agreement Efforts

Efforts to form a trade agreement between EU car manufacturers and the US are underway. This agreement seeks tariff reductions in exchange for increased US investments. The EU is considering a uniform 10% tariff on pharmaceuticals, alcohol, and other sectors. In May, German factory orders dropped by 1.4% month-on-month, unlike the 1.6% rise seen in April. However, there was a slight year-over-year improvement, with the decline softening from 5.8% to 5.3%. Looking ahead, the EU is set to release important data next week, including German Industrial Production, the Eurogroup meeting, ECB speakers, and Retail Sales figures. The technical outlook for EUR/USD indicates potential gains, testing resistance at 1.1800. Should a decline occur, support is around 1.1750. Despite the small rise in EUR/USD amidst light trading—due to the US holiday—the market reaction was calm as the weekend approached. The pair moved up just under 0.2% on Friday, bringing the week’s gain to just over 0.5%. This increase is notable, especially given it followed stronger-than-expected US data, which generally boosts the dollar.

Market Reactions and Trade Policy

Trade policy shifted unexpectedly with new tariffs confirmed, ranging from 10% to 70%, set to start in August. While not directly affecting EUR/USD yet, this announcement led traders to rethink their expectations, considering possible reductions in transatlantic trade and slower cross-border corporate investments. Additionally, the 17% tariff on European food imports puts more pressure on European exporters, especially in the agricultural sector, which had just begun to recover from past disruptions due to global supply chain issues. Discussions between EU carmakers and US officials continue, focusing on tariff cuts in return for increased US investment in European factories. Brussels has proposed a uniform 10% tariff, especially for pharmaceuticals and alcohol, as part of a strategy to avoid varying tariffs across different sectors. Traders assessing the potential impact of this deal should view it in the larger context of adjusting trade relationships. If successful, the euro could gain support from updated medium-term trade volume forecasts. From an economic data viewpoint, the decline in German factory orders deserves attention. A 1.4% contraction in May follows a positive April with a 1.6% increase. Year-over-year, the decline eased slightly to 5.3% from 5.8%. This may slow momentum, but it does not overshadow the recovery trend since early Q1. Market reactions to upcoming data could become more pronounced, especially as discussions on fiscal rules in the Eurozone intensify in the second half of the year. Next week’s schedule is busy. German Industrial Production figures are expected early, but outcomes may be lackluster based on recent manufacturer order trends. The Eurogroup meeting will draw attention for potential policy coordination regarding inflation targeting. ECB speakers will also provide insights or raise uncertainties around the latest wage growth figures. Retail Sales figures, while possibly quiet, could serve as a decisive factor if results significantly deviate from expectations. From a technical standpoint, EUR/USD is attempting to rise above 1.1800, a level last reached in late spring. If this upward momentum is backed by supportive data or clear ECB guidance, it could break through this barrier, attracting interest from momentum traders and mechanical rebalancing flows. On the downside, a support level exists around 1.1750, which has held during minor sell-offs in previous sessions. If sentiment shifts and risk appetite diminishes, this level might be tested again. For now, the trajectory seems moderately positive, heavily influenced by external news rather than domestic economic strength. Create your live VT Markets account and start trading now.

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