- The euro’s next move hinges more on headlines than charts right now.
- But beneath the noise, Germany’s fiscal pivot may be planting long-term bullish roots.
- Meanwhile, the dollar is tiptoeing through mixed data and tariff tension, unsure which way to lean.
- Looking for more actionable trade ideas to navigate the current market volatility? Subscribe here to unlock access to ProPicks AI winners.
EUR/USD Path to $1.10 Remains Open
The EUR/USD has eased modestly lower in the past 5 sessions, losing momentum after staging one of its strongest rallies in recent times at the start of the month. The focus remains on the ongoing trade war and reports that Trump’s tariffs would be more targeted than initially feared, has dampened demand for safe haven assets. Earlier this week, Trump announced that new tariffs on automobile imports will be revealed in the coming days but hinted that nations will receive breaks from next week’s “reciprocal” tariffs. The confusion regarding tariffs means the near-term EUR/USD direction remains murky, but I maintain an overall bullish view on the pair in light of Germany’s historic fiscal shift approved last week and the recent weakness in US data.
Key US Data on the Radar
The U.S. Dollar Index has made a shaky start to the week after it ended the previous one a bit higher as it consolidated after an uninspiring performance in the preceding weeks. The dollar’s weakness has been marked by mixed-to-weak data and a slightly dovish Federal Reserve. While Chair Jerome Powell reassured markets last week by downplaying inflation risks from tariffs, the University of Michigan’s inflation expectations survey raised some concerns. However, Powell dismissed these as temporary fluctuations, suggesting that tariff-driven inflation might not be sustained.
Still, signs of an economic slowdown are emerging. Ongoing trade war risks and signs of sticky inflation continue to weigh on consumer and business sentiment. Yesterday, we saw the CB consumer confidence slumped to a four-year low, tempering optimism over a potential end of the conflict in Ukraine, where Russia and Ukraine have agreed to truce in the Black Sea. On top of this, we had the Philly Fed non-manufacturing index plunging to -32.5 vs -13.1 expected. The Richmond Manufacturing Index didn’t fare well either, printing -4 vs, +8 expected. Meanwhile, New Home Sales printed 676K vs. 682K annualised units expected.
Looking ahead, today’s macro highlights include Durable Goods Orders, while Thursday will bring Unemployment Claims, the Final Q4 GDP estimate, and Pending Home Sales. However, Friday’s Core PCE release will be the main event. As the Fed’s preferred inflation gauge, a steady +0.3% m/m reading would push the annual rate to 2.7% from 2.6%, testing Powell’s stance that inflationary pressures remain contained.
EUR/USD Caught Between Germany’s Fiscal Stimulus and Us Tariffs Uncertainty
The uncertainty surrounding the April 2 tariffs is holding back the euro for now. Yesterday, Trump announced that new tariffs on automobile imports will be revealed in the coming days, adding to the uncertainty surrounding the sweeping levies set to take effect on April 2. While some nations are expected to receive exemptions from the “reciprocal” tariffs, markets remain in wait-and-see mode. If Trump follows through with broad tariffs, you’d think it would weigh on the EUR/USD in the short term at least.
That said, the euro is likely to find buyers on any short-term dips, thanks to Germany’s landmark spending package approved last week. The €500 billion stimulus, a major departure from Berlin’s traditionally conservative fiscal policy, is aimed at revitalizing the economy and increasing defence spending. This historic move could boost German GDP and introduce mild inflationary pressures, both of which are supportive of the medium-term EUR/USD forecast.
EUR/USD Technical Analysis and Trade Ideas
From a technical perspective, EUR/USD gave up some ground last week but remains near the key 1.0800 level, keeping a push towards 1.10 within reach. The bulls must continue to defend this region to maintain upward momentum. A decisive break lower, however, could bring into focus support levels at 1.0730 (the 200-day moving average), followed by 1.0700 and 1.0630. On the upside, resistance sits at 1.0900 and 1.0950, with the critical psychological level of 1.1000 looming as the key hurdle. The coming sessions could determine whether the pair resumes its rally or experiences a deeper correction as rates continue to coil inside what looks to be a bullish continuation pattern (descending triangle).
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