- The bearish outlook for the EUR/USD currency pair is still the strongest and it seems that the EUR/USD exchange rate will weaken again in a week dominated by tariff concerns, US inflation and Eurozone GDP data for the last quarter of 2024.
- At the beginning of this important week's trading, the EUR/USD fell towards the 1.0277 support level before settling around the 1.0300 level at the time of writing the analysis.
- Obviously, the currency pair's losses increased as investors reacted to US President Donald Trump's message before the start of trading that new tariffs will be imposed this week.
The US administration is determined to pass the tariffs
In this regard, the US President announced that he will impose 25% tariffs on all steel and aluminium imports and that other tariffs will be announced in the coming days. Following the developments, “Treasury yields rose on inflation concerns and financial markets reduced the chances of seeing a second rate cut by the Federal Reserve this year. Also, the US dollar rose broadly.”
Trump stated that he would announce additional tariffs later in the week in response to those imposed by other countries on US imports, opening the door to tariffs on the European Union. In response, French Foreign Minister Jean-Yves Le Drian said that the European Union should not hesitate to defend its interests, telling TF1 television that "the time has come" for the EU to pull the trigger on retaliatory measures.
The European official added, "That's what Donald Trump did in 2018, and we responded. And we will respond again. is ready to pull the trigger when the time comes. And now is the time. No one is in anyone's interest to start a trade war with the European Union."
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How will these tariffs impact the euro-dollar?
The mutual tariffs are now at stake, and this portends further weakness in the performance of the EUR/USD currency pair and a break of the 1.02 support will be the closest to that. On the economic data front. The US inflation data tomorrow, Wednesday, is the most prominent. The headline reading is expected to record 0.3% on a monthly basis, which would raise the annual rate to 2.9%, and the core inflation to reach 0.3% on a monthly basis.
Any reading above this is likely to give the dollar some strength and push the EUR/USD pair below 1.03. On the other hand, a drop below the upper limit would weigh on the US dollar as it stabilizes the expectations of “hawkish” interest rates and increases hopes for more rate cuts by the US Federal Reserve this year.
Overall, the US inflation data will come on the heels of some better-than-expected US jobs and wages figures released last Friday, limiting the room available for the US Federal Reserve to cut interest rates, ultimately supporting US bond yields and the US dollar.
On the monetary policy front, keep an eye on comments by Federal Reserve Chairman Jerome Powell to lawmakers on Tuesday and Wednesday. We know he is keen to pause the rate hike cycle amid policy uncertainty, but his response to any questions about tariffs could be important in determining how the Fed handles the matter.
Trading Tips:
The euro remains under selling pressure, which weakens any attempts by the European currency to rebound higher
Important European Events for Euro Performance
Looking at the European side of the equation, we will be watching for European Central Bank President Christine Lagarde’s speech at the start of the week and Isabel Schnabel’s speech on Tuesday. Both are expected to reiterate expectations that the ECB will “outperform” the Fed in 2025, confirming a divergence that has been a major factor behind the EUR/USD’s depreciation trend over the past several years.
Elsewhere, Eurozone employment data is due on Friday, with 0% quarterly growth expected, meaning no growth for the second consecutive quarter. Alongside this, employment figures are due to be released, with a 0.2% to 0.1% quarter-on-quarter decline. The Euro could come under pressure if the headline numbers come in below expectations, as this would reinforce bets that the ECB will cut interest rates more than currently expected.
EUR/USD Technical Analysis Today:
Our technical outlook for the EUR/USD currency pair remains bearish. As mentioned earlier, the overall trend is still downward, and the bears have an opportunity to move towards stronger support levels. As we mentioned earlier also, breaking the support levels of 1.0245 and 1.0180 will accelerate the move towards parity for the Euro/Dollar sooner than previously expected. At the same time, all technical indicators will move towards oversold levels. We still expect a rapid evaporation of the Euro/Dollar's gains, and the closest resistance levels are currently 1.0410 and 1.0550. Decisively, the downward movement will continue until markets and investors react to the events mentioned above.
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