The EUR/USD pair experienced a significant drop at the weekly opening, trading near the 1.0200 mark and creating a large gap amid weekend developments. This decline comes on the heels of United States President Donald Trump's announcement on Saturday of the first round of tariffs targeting Mexico, Canada, and China. As a result, the US Dollar surged, causing the EUR/USD pair to lose approximately 150 pips, struggling to close the gap as it sits in a precarious position ahead of key economic data releases.
The US Dollar continues to exert pressure on the EUR/USD pair, which is currently trading over 100 pips below all its moving averages. The 20 Simple Moving Average (SMA) has crossed below the directionless 100 and 200 SMAs, reinforcing the bearish sentiment surrounding the pair. Although there are signs of recovery, the pair remains far from a bullish turnaround.
Trump's tariff announcement had a ripple effect on the global economy, prompting a risk-averse market atmosphere. As a result, XAU/USD witnessed upward movement amid investor uncertainty. Meanwhile, global stock markets suffered, with all Asian and European indexes trading in negative territory as investors reacted to the news.
In Europe, the preliminary estimate of the January Harmonized Index of Consumer Prices (HICP) was published, revealing a year-on-year increase of 2.5%, in line with expectations. However, this data did little to offset the broader market concerns stemming from Trump's tariff decisions. Francois Villeroy de Galhau, a member of the European Central Bank's Governing Council and Governor of the French Central Bank, described the tariffs as "very brutal," highlighting their potential impact on the auto sector in particular.
President Trump further stated that while tariffs would "definitely" affect both the European Union and the United Kingdom, there remains room for negotiation with the UK to potentially reach a deal. In response, Canada has already announced its own retaliatory tariffs, while Chinese authorities have outlined countermeasures.
Amidst these developments, the US Dollar has shown signs of retreating slightly, offering some stability to the EUR/USD pair. However, market participants remain cautious as they await crucial US economic data. The US S&P Manufacturing PMI and the official ISM index for January are set to be released during the American session, which could influence further currency movements.