The EUR/USD pair is pulling back from its earlier highs while still showing a downtrend from last week’s peak. Market sentiment remains cautious due to worries about global trade tensions caused by US tariffs. The Euro rose from nearly two-week lows at 1.1690 during the Asian session, but gains were capped at 1.1770 in early European trading, ending around 1.1730 before Wall Street opened. Trade talks between the Eurozone and the US seem to be moving positively, possibly leading to an agreement soon.

Trade Data Insights

Recent trade data from France and Germany showed mixed outcomes. Germany’s trade surplus increased to EUR 18.4 billion in May, driven by lower imports, suggesting weaker domestic demand. France’s trade deficit, however, rose slightly to EUR 7.76 billion. Eurozone Retail Sales fell by 0.7% in May, marking the largest drop in almost two years, reflecting the impact of US tariffs on consumer confidence, despite a small rise in German industrial production in May. This week’s focus is on the FOMC Minutes, which could influence the US Dollar’s path. Technical indicators for the EUR/USD suggest indecision, with price action forming an expanding wedge pattern, close to important support and resistance levels. Understanding “risk-on” and “risk-off” scenarios can help explain currency movements, as the US Dollar, Japanese Yen, and Swiss Franc usually gain in risk-off periods due to their perceived safety. As the week progresses, the EUR/USD pair seems uncertain, pulling back slightly after a brief rise during early trading. It remains caught in a larger downward trend that began late last week, raising doubts about whether recent gains are just temporary relief before bearish momentum resumes. The overnight bounce lost strength around 1.1770—a familiar resistance point—before sliding back to about 1.1730 ahead of the North American session. This resistance zone is worth monitoring. US tariff actions continue to create uncertainty in cross-border sentiment, leading market participants to reevaluate their exposure across various regions. However, there are hints of optimism, with reports suggesting that talks between Brussels and Washington are making progress. If these discussions lead to even a small agreement soon, it could relieve some pressure on Europe—not just politically, but also by boosting confidence levels.

Economic Indicators And Currency Movements

The mixed results from the latest trade data complicate the outlook. Germany’s unexpected larger surplus indicates a significant decrease in imports, suggesting some weakness in domestic demand—possibly due to delays in investment or inventory restocking, rather than just a preference for foreign goods. This domestic pullback contrasts with a slight improvement in factory output, which may ease the worst fears but doesn’t outweigh the broader signs of weakness. In France, the trade deficit widened slightly. While this isn’t alarming on its own, it adds to the overall uncertainty in the Eurozone. Retail sales fell by 0.7% in May, the steepest drop in nearly two years. This decline indicates that the strain from tariffs is affecting consumer confidence just as the Eurozone hoped for stronger domestic resilience. This situation makes it less likely for the Euro to gain solid ground without an external boost. Dollar watchers are keenly awaiting the Federal Reserve’s meeting minutes. The focus isn’t just on interest rate moves, but on how Fed members discuss inflation pressures, employment trends, and trade risks. Any indication of a shifting consensus could quickly lead to changes in the Dollar’s strength, depending on the news. We should consider the Fed’s viewpoint on economic risks, especially as the US economy might be more insulated from current trade tensions than Europe. Technically, the wedge pattern forming in the EUR/USD chart points to potential volatility ahead. Price action is approaching levels where bulls and bears are likely to test one another’s resolve more aggressively. These patterns, especially in narrowing ranges, don’t typically last long before a directional move occurs. Therefore, it’s important to keep an eye on short-term support and resistance levels and be ready to adjust exposure quickly. From an asset correlation perspective, understanding shifts between risk-on and risk-off environments is more crucial than ever. Traditional safe havens—the Dollar, Yen, and Franc—are responding predictably during times of increased anxiety as investors seek safety. Risk appetite has fluctuated sharply, leading to sudden changes in currency flows even with modest headlines. This volatility suggests that heavily investing in one narrative—like optimism about trade talks or belief in Eurozone stability—might not be sustainable if unexpected data emerges. Being flexible and remaining neutral may be more prudent until clearer direction appears. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now