EUR/USD has lost some of its earlier gains due to US President Trump’s warning about possible 50% tariffs on Eurozone products. This follows a decline in the US Dollar, fueled by worries over ongoing budget deficits. Trump’s tax plan could add an estimated $3.8 trillion to the national debt over the next ten years. Trump’s tariff threats have left trade tensions between the US and EU unresolved. The US Trade Representative criticized the EU’s tariff proposals. The US imported $605.8 billion in goods from the EU, highlighting the EU’s significant trade surplus with the US.

eur/usd market response

Despite these issues, EUR/USD is holding steady around 1.1330 as the US Dollar Index (DXY) drops to a two-week low. Moody’s has downgraded the US sovereign credit rating due to persistent high fiscal deficits. The upcoming US tax plan may lead to inflation, possibly causing the Federal Reserve to hesitate on interest rate cuts. In the Eurozone, negotiated wage rates for Q1 have decreased, which could prompt further rate cuts from the European Central Bank (ECB). ECB policymaker Nagel has expressed caution about additional cuts, stating that current borrowing costs are not problematic. Meanwhile, the Euro struggled following disappointing PMI data that showed a downturn in business activity. EUR/USD currently encounters technical challenges around 1.1370, with the 20-day EMA at 1.1255. The 14-period RSI is close to 60.00, with resistance at 1.1425 and important support at 1.1000.

exchange rate dynamics

For those tracking exchange rates and market volatility, this week’s events highlight the need for careful positioning amid changing monetary policies and trade discussions. Initially, EUR/USD saw an uptick, but this was quickly reversed by Trump’s tariff announcement. The idea of a 50% tariff on Eurozone exports shocked the market, which began factoring in higher risks. This shift demands we exercise caution, especially when assuming the Euro will strengthen. The EUR/USD pair remains near 1.1330, but the stability feels fragile. This is mirrored by the declining US Dollar Index, which recently hit a two-week low. This dollar weakness coincides with increasing concerns about the US’s long-term fiscal health. Moody’s downgrade of US sovereign credit due to ongoing high deficits further worsens the Greenback’s outlook. However, we should be careful not to bet too heavily against the Dollar. The tax proposals could trigger price increases, which may force the Federal Reserve to act more conservatively. The idea that the Fed could pivot towards lower rates conflicts with the inflation risks from increased fiscal spending. As a result, the short end of the US yield curve may still see support, limiting any major upside for the Euro without strong local data. The situation in the Eurozone isn’t ideal either. Recent wage data shows a weakening trend. Normally, this would encourage the ECB to maintain or even reverse easing policies. Still, Nagel’s comments suggest no immediate need for drastic rate cuts, as borrowing costs remain manageable. This uncertainty keeps the Euro sensitive, especially with PMI figures falling below neutral levels. From a technical perspective, 1.1370 acts as a nearby ceiling. The 20-day EMA is at 1.1255, indicating a risk of decline if there’s another policy setback or poor data from the Eurozone. Resistance at 1.1425 would require stronger data and clearer rate expectations. We’re also watching the 1.1000 level closely; a dip below this would suggest a negative turn for Euro-backed trades. Current market positioning should take into account both recent news and long-term factors like fiscal health and monetary policy balance. Higher volatility scenarios may emerge during this transition, making options trading more favorable if managing leveraged exposure becomes challenging. Expect the next few sessions to be influenced by new statements from officials in Washington and Frankfurt. We recommend reassessing any overnight positions daily, especially with potential headline risks or data releases. Now is not the time for wide stops or unhedged carry positions beyond the short term. We’re reducing risk where RSI approaches critical momentum limits without strong supporting data, particularly around resistance levels where extended Euro longs may begin quietly exiting. Create your live VT Markets account and start trading now.

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