The EUR/USD currency pair made a notable recovery from its three-week low of 1.0210, trading near 1.0350 during Tuesday’s European session. The bounce-back comes as US President Donald Trump temporarily suspends tariff impositions on Canada and Mexico, reducing the appeal of the US Dollar as a safe-haven asset. Meanwhile, the global economic landscape remains tense, with renewed fears of a US-China trade war following retaliatory tariffs from Beijing, impacting market sentiment.
The EUR/USD pair faced pressure earlier as demand for the US Dollar increased amid heightened risk aversion resulting from China's retaliatory actions against US tariffs. This escalation in the US-China trade conflict threatens to inject further volatility into markets, affecting not only traditional assets but also cryptocurrencies like Bitcoin.
Gold has recently consolidated its strong gains, reaching a record high on Monday, underscoring the continuing investor pivot towards safe-haven assets amid economic uncertainties. The European Central Bank (ECB) is anticipated to cut interest rates three more times this year, adding layers of complexity to the economic outlook.
Market participants are closely monitoring an array of labor market-related economic indicators in the United States this week. These include JOLTS Job Openings, ADP Employment Change, Nonfarm Payrolls (NFP) data, and ISM Services PMI figures. These indicators will provide insights into the labor market's health and significantly influence speculation regarding the Federal Reserve’s monetary policy stance for the upcoming year.
In a strategic move that calmed some market tensions, President Trump decided to halt tariffs on North American partners after securing their cooperation to curb fentanyl trafficking.
"China hopefully is going to stop sending us fentanyl, and if they're not, the tariffs are going to go substantially higher," – Donald Trump
Despite this temporary reprieve for North American trade relations, markets remain cautious about potential US tariffs targeting the Euro area. The EUR/USD finds support amidst this uncertainty, rebounding from an intraday low of 1.0270 to approach 1.0350. The 14-day Relative Strength Index (RSI) remains above 40.00, hinting at possible bearish momentum should it drop below this threshold.
The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, relinquished its intraday gains, trading at 108.44, closely aligned with Monday’s low of 108.40.
In the broader context of international trade, President Trump's tariffs on China have commenced, with Beijing swiftly retaliating with counter-tariffs. This exchange has reignited fears of an escalating trade war between the world's two largest economies.
"If our commercial interests are attacked, Europe, as a true power, will have to make itself respected and therefore react," – Emmanuel Macron
The potential for increased tariffs continues to loom large over global markets. As President Trump hinted at further tariff hikes should China fail to comply with US demands, uncertainty prevails.
"If they're not, the tariffs are going to go substantially higher" – Donald Trump