US President Donald Trump has stirred up global market volatility again. He sent letters to roughly 40 other countries, setting up tariffs of 20% to 40%. Among other things, the announcement provides a lengthy grace period that runs until August 1. The fallout from this news has increased risk aversion among investors and greatly affected the currency markets.
In a show of real chutzpah, Trump declared a shocking 50% tariff on Brazil. In recent remarks, he blamed the South American country for currency manipulation and other illicit trade practices. He accused Brazil of running a “witch hunt” against ex-President Jair Bolsonaro. Recent progress has vitally shifted the dynamics of the EUR/USD currency pair. Hence, it steadily declined during the course of the last week.
Tariff Announcements and Market Reactions
Trump’s letters are a clear reflection of a blustery approach to trade policy. Importantly, they serve to show his continued drive to remake the economic landscape. Now that the tariffs are in effect, investors are trying to understand what they mean for the delicate global trade relations. The unpredictability of these tariffs has contributed to a dramatic increase in demand for the US dollar. During times of instability, everyone rushes to the dollar as a safe haven currency, no matter what.
The market for the EUR/USD currency pair has reacted negatively to this announcement, pulling back from its multi-year high of 1.1830 that was reached in mid-July. As of writing, it is still trading below the 1.1700 level, showing that there is still a lot of caution in market sentiment. ANALYSTS TAKE Analysts expect this pair to meet resistance in the short term near the 1.1720 mark. A more important resistance level is seen near 1.1770, the break of which could confirm that the corrective decline is finished.
Even as Trump’s tariff strategy continues to take shape, the market continues to prepare for the worst. The Federal Open Market Committee (FOMC) just released the minutes from their June meeting. These minutes provide a telling glimpse into the Federal Reserve’s first blush on direction of monetary policy in context of escalating trade tensions.
Economic Indicators and Future Projections
Also anticipated on Tuesday is the US June Consumer Price Index (CPI). This report will be a key measure of our overall economic vitality and where today’s inflation is headed. The CPI data will be pivotal in shaping market expectations of any future Fed rate hikes. Traders will be watching this data very closely for clues as to future changes.
Market participants are especially interested in how the data will affect the strength of the US dollar against the euro. We all know inflation is the major issue of the moment. Trump’s latest bombastic complaints about “non-existent inflation for months” reflect his growing exasperation with the current state of affairs and the impotence of our economic overlords.
“about non-existent Inflation for months, and refuses to do the right thing.” – Donald Trump
Merchant traders are extremely nervous. They’re especially on the lookout for signs of a policy pivot that might follow from this most recent inflation reading. If the EUR/USD pair breaks under the 1.1650 area, it may continue to fall. Coincidentally, this level is where we find the 23.6% Fibonacci retracement level.
Technical Analysis and Market Outlook
The technical indicators overwhelmingly point to an inflection point. If the EUR/USD currency pair breaks higher through 1.1770, it would likely indicate a reversal of the ongoing downtrend. Should the pair carry on with the downtrend below pivotal supports, particularly under 1.1650, look for additional downside. This might bring a retest toward the 38.2% Fibonacci retracement level, which is about 1.1540.
Analysts are eagerly attune to the developments here as these levels will set the groundwork for their near-term outlook on how to maneuver through this turbulent market terrain. Wider macroeconomic factors are at play, not least Trump’s tariff impositions and this month’s economic reports. All three will have a major impact on trading strategy in the upcoming weeks.