Yesterday, Donald Trump announced plans to impose a 25% tariff on Europe, with the tariffs also expected to cover cars imported from Europe to the United States. However, the EUR/USD reaction to the renewal of these ‘threats’ appears relatively muted, as the pair declined from around 1.052 to 1.047. Recently, the pair’s gains have been supported by mixed data from the U.S. economy, where inflation expectations (as well as inflation itself) are rising—yet the economy appears to be experiencing at least a temporary slowdown.
This is reflected in the latest data on consumer sentiment from the Conference Board, weaker services PMI, a disappointing retail sales reading, and cautious forecasts from some U.S. companies (such as Walmart), which have long been considered a barometer of consumer health. As a result, we see that the outlook for an expected (albeit still uncertain) economic rebound in Europe—potentially supported by greater flexibility for monetary easing at the ECB (where inflation appears to be under better control)—is at least temporarily offsetting bond yield differentials and the structural challenges facing the European economy.
In a scenario where U.S. consumer sentiment weakens further and key economic data underperforms, the market might start interpreting higher inflation readings as negative for the dollar. Stronger price pressures could tie the Federal Reserve’s hands, limiting its ability to cut rates to ease labor market conditions or stimulate the economy. For the euro’s strength, global sentiment—particularly risk appetite and investment flows into emerging markets (EM)—along with better inflation control compared to the U.S., will be crucial. Such a scenario would give the ECB more room for monetary easing and potential economic stimulus.
EUR/USD Chart (D1 Timeframe)
Looking at EUR/USD’s downward impulse, we can see that the pair rebounded after testing the 1.02 area, which aligns with the 61.8% Fibonacci retracement of the entire upward wave from 2022. The pair is also attempting to hold above the EMA50 (orange line). At least for now, the risk of a parity test has diminished, and investors have adjusted their positioning.
Source: xStation5
Source: xStation5
The material on this page does not constitute financial advice and does not take into account your level of understanding, investment objectives, financial situation or any other specific needs. All information provided, including opinions, market research, mathematical results and technical analyzes published on the Website or transmitted To you by other means, it is provided for information purposes only and should in no way be construed as an offer or solicitation for a transaction in any financial instrument, nor should the information provided be construed as advice of a legal or financial nature on which any investment decisions you make should be based exclusively To your level of understanding, investment objectives, financial situation, or other specific needs, any decision to act on the information published on the Website or sent to you by other means is entirely at your own risk if you In doubt or unsure about your understanding of a particular product, instrument, service or transaction, you should seek professional or legal advice before trading. Investing in CFDs carries a high level of risk, as they are leveraged products and have small movements Often the market can result in much larger movements in the value of your investment, and this can work against you or in your favor. Please ensure you fully understand the risks involved, taking into account investments objectives and level of experience, before trading and, if necessary, seek independent advice.
