EUR/USD experienced a modest increase of 0.18% on Friday, even as thin liquidity conditions prevailed due to the US Independence Day holiday. The currency pair is likely to conclude the week with a 0.53% rise, trading at 1.1778, amid robust US economic data releases.
Focus shifted towards tariff concerns when US President Donald Trump announced new tariffs ranging from 10% to 70% starting August 1. Additionally, Europe-US trade tensions intensified as Washington imposed a 17% tariff on European food.
Trade Agreement Attempts
An attempt to reach a trade agreement between EU carmakers and the US is ongoing, involving tariff reductions in exchange for increased US investments. The EU is considering accepting a uniform 10% tariff for diluted rates on pharmaceuticals, alcohol, and other sectors.
German factory orders fell 1.4% month-on-month in May, contrasting with April’s 1.6% rise. Yet, orders showed slight year-over-year improvement, dropping from 5.8% to 5.3%.
Expected EU data next week includes German Industrial Production, a Eurogroup meeting, ECB speakers, and Retail Sales figures. EUR/USD’s technical outlook sees potential gains, testing resistance at 1.1800, with support around 1.1750 should a decline occur.
Given the modest rise in EUR/USD amidst light trading volumes—largely a result of the US Independence Day holiday—we observed a relatively composed market reaction heading into the weekend. Despite thinner volumes, the pair pushed up by just under two-tenths of a percent on Friday, bringing the week’s gain to little more than half a percent. That move is somewhat telling, especially considering that it happened on the back of stronger-than-expected US data, which typically adds strength to the dollar.
Market Reactions and Trade Policy
Trade policy took an unexpected turn when new tariffs were confirmed, with measures ranging from 10% up to a striking 70%, due to come into effect at the start of August. While not directly priced into the EUR/USD just yet, the announcement sparked a recalibration in directional expectations, as participants began to factor in reduced transatlantic trade volumes and slower cross-border corporate investment. Furthermore, the new 17% levy on European food imports further pressures European exporters, particularly agricultural sectors that had only just stabilised after earlier disruptions linked to global supply chain issues.
Talks between EU carmakers and US officials continue—with interest centred on tariff reductions in exchange for increased American capital deployment in European factories. Brussels has floated a uniform 10% rate, particularly on sectors like pharmaceuticals and alcoholic beverages, as part of a broader strategy to avoid disparate tariffs across categories. Market participants assessing the potential impact of this deal should consider it within the larger thematic of rebalancing trade exposure. Should advances be made, the euro could find support purely from a revaluation of medium-term trade volume expectations.
From a macro data perspective, the headline figure on German factory orders warrants attention. A monthly contraction of 1.4% in May follows a relatively upbeat April, which had posted a 1.6% rise. Nonetheless, on a yearly basis, the slide has lessened slightly, narrowing to 5.3% from 5.8%. This dampens momentum somewhat, but doesn’t erase the broader trend of recovery underway since early Q1. Still, market reaction to future releases may become more sensitive as the debate over fiscal rules in the Eurozone gains steam during the second half of the year.
Next week’s schedule is relatively dense. German Industrial Production is expected early in the week, and expectations for this figure are tepid, given recent order book movements from manufacturers. The Eurogroup meeting will be watched for any signs of policy coordination, especially in relation to inflation targeting. ECB speakers are lined up as well, and their comments will likely provide clarity—or sow uncertainty—on how the ECB is viewing the latest wage growth figures. Retail Sales could be a quiet release but may serve as a tie-breaker if data come in materially above or below consensus.
From a technical perspective, we see EUR/USD trying to nudge beyond 1.1800, an area we last saw during the late spring. If momentum is confirmed with data support or ECB clarity, it could break that ceiling, triggering fresh interest from momentum traders and possibly mechanical rebalancing flows. On the downside, support sits around 1.1750, a level that held through minor sell-offs in prior sessions. If sentiment rotates and risk appetite dries up, that boundary may come under test again. For now, the path remains moderately upward, dependent largely on external news over internal economic strength.
