The EUR/USD currency pair has skyrocketed ever since the US dollar began to weaken. This move occurs just ahead of President Donald Trump’s fourth and final major tariff announcement. In opposition to forecasts that the European Union (EU) would be hit with massive tariffs, the Euro has been able to sustain its upward trend. Now, investors have an understandably cautious optimism. As of Wednesday morning, the Euro is trading just below 1.0800, not having fully crossed a key psychological barrier of 1.1000 – but moving in that direction nonetheless.
The unfortunate potential impact of Trump’s looming tariffs is one concern weighing on economic prospects for the Eurozone. Analysts are cautioning that should the EU be forced to retaliate with countermeasures it would make an already difficult economic situation even worse. The US dollar index (DXY), which tracks the dollar’s value against six major currencies, has fallen to nearly 104.00, further strengthening the Euro’s position.
Impact of Tariffs on the Eurozone Economy
President Trump’s new suite of tariffs is expected to take effect immediately following the announcement at 20:00 GMT. The new proposed measures would have a revolutionary effect on the state of the economy in the Eurozone. Experts predict it will be the worst impacted of any America’s top trading partners hit with these tariffs. Analysts warn that these radical tariffs will stifle economic development and stability across the diverse region.
European Commission President Ursula von der Leyen emphasized the EU’s readiness to respond to any tariffs imposed by the United States.
“We do not necessarily want to retaliate, but if it is necessary, we have a strong plan to do so, and we will use it.” – European Commission President Ursula von der Leyen
While the EU hopes to avoid escalating tensions, experts note that if retaliatory measures are enacted, it could worsen the economic outlook for Europe.
Economic Indicators and Market Reactions
We’ve recently seen data from the Eurozone indicating that inflation might be cooling down. This shift may affect the European Central Bank’s (ECB) forthcoming interest rate decisions. On Tuesday, Eurostat reported that the core Harmonized Index of Consumer Prices (HICP) increased by 2.4% year-on-year. This figure was below the expected 2.5% and down from the 2.6% previously reported in earlier releases.
Christine Lagarde, the President of the ECB, sounded supremely assured in her comments this morning on Irish radio station Newstalk. She’s optimistic about where the fight to tame inflation is headed.
“There is still a bit of work to do on inflation, but it is very close to target.” – Christine Lagarde
That’s because such an outlook hardens expectations for potential interest rate cuts to come. Faltering inflation regularly clears the ground for monetary easing.
In March, the US private sector gained a robust 155,000 jobs. This jump is a sign of a strong labor market, despite continued economic headwinds. This stew of economic headwinds and tailwinds makes for a difficult backdrop for any currency movement.
Technical Analysis and Market Sentiment
As EUR/USD ticks higher, market analysts note that it’s not breaking out above Tuesday’s trading range. The 14-day Relative Strength Index (RSI) has retreated below 60.00, indicating that bullish momentum could have found a floor. The ongoing upside bias does indicate potential for further gains.
The Euro has been on a tear against all other currencies of late, and most noticeably against the Canadian dollar today, giving us very strong uncertainty signals. Market participants are on high alert for any sign that might do the trick and send EUR/USD through these key hurdles.
Trump’s announcement of his tariffs is imminent. Traders need to be on their toes because geopolitical concerns and economic fundamentals are vigorously influencing currency trends. The psychological level of 1.1000 is considered to be key for Euro bulls to make a move towards further advances.