In recent developments, the EUR/USD currency pair has encountered significant selling pressure, primarily driven by fresh tariff threats from the United States. President Donald Trump has intensified concerns by threatening to impose tariffs on the Eurozone, a move that could exacerbate existing economic tensions between the two regions. This development comes amidst a backdrop of weakening consumer spending in December, which contracted by 1.6%, further adding to the economic strain in the Eurozone.
The EUR/USD pair's near-term trend has turned bearish, breaking below the critical support levels and extending its downside beyond the 20-day Exponential Moving Average (EMA). As the pair breaks out of its tight consolidation range of 1.0450-1.0530, it faces significant challenges ahead. The 14-day Relative Strength Index (RSI) continues to decline toward 40.00, indicating a bearish momentum that may persist if current conditions do not improve.
Adding to the challenges for the Euro, the US Dollar Index (DXY) has extended its strong upward trajectory, reaching near 107.40. This rise in the value of the US dollar puts additional pressure on the EUR/USD pair, as investors seek safer haven assets amid geopolitical uncertainties. The February 24 high of 1.0530 now stands as a crucial barrier for Euro bulls, while the February 10 low of 1.0285 will act as a major support zone for the pair.
President Trump's recent rhetoric has contributed to the market's unease. He stated that "drugs are still pouring into the economy from the borders of his North American allies," indicating a broader concern over trade and border issues that could impact economic relations.
The German economy, a key player in the Eurozone, is expected to bear the brunt of any trade war between the Eurozone and the United States. Such a scenario could have significant repercussions for both economies, affecting trade balances and economic growth prospects.
In parallel, investors are closely monitoring upcoming economic data releases that could influence market sentiment further. The US Bureau of Economic Analysis is set to release the Personal Consumption Expenditures (PCE) Price Index data for January on Friday at 13:30 GMT. This data holds particular significance as it is considered the Federal Reserve's preferred gauge of inflation. A high reading of the PCE Price Index would be bullish for the US dollar, while a low reading could weigh on its strength.
Meanwhile, retail sales data—a key measure of consumer spending—rose by 0.2% in the month, signaling some resilience in consumer behavior despite broader economic challenges. However, this increase was overshadowed by the contraction in consumer spending seen in December.
The Core Personal Consumption Expenditures (PCE), released monthly by the US Bureau of Economic Analysis, measures changes in the prices of goods and services purchased by consumers in the United States. These figures are closely watched by investors and policymakers alike, as they provide insights into inflationary trends and consumer spending patterns.