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 lower rates on medicines, 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.Market Reactions and Trade Policy
Trade policy took an unexpected turn when new tariffs were confirmed, with measures ranging from 10% to 70%, due to come into effect at the start of August. While not directly priced into the EUR/USD, the announcement sparked a recalibration in directional expectations, as participants began to factor in reduced trade volumes and slower cross-border corporate investment. Furthermore, the new 17% tax on European food imports puts additional pressure on European exporters, particularly in agriculture. Talks between EU carmakers and US officials continue, with an interest in tariff reductions in exchange for increased American investments in European factories. Brussels has proposed a uniform 10% rate on sectors like medicines and alcoholic beverages, as part of a broader strategy. Market participants assessing the potential impact of this deal should consider it within the larger context of adjusting trade exposure. From a macro data perspective, the decline in German factory orders is noteworthy. A monthly drop of 1.4% in May follows a relatively positive April, which had a 1.6% rise. However, on a yearly basis, this drop has lessened slightly, from 5.8% to 5.3%. This dampens momentum somewhat but doesn’t erase the broader recovery trend since early Q1. Nevertheless, market reaction to future releases may become more sensitive as discussions over fiscal rules in the Eurozone gain momentum in the latter 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 low, given recent order book movements. The Eurogroup meeting will be monitored for any signs of policy coordination, especially regarding inflation targets. ECB speakers are also scheduled, and their comments may provide clarity—or raise uncertainty—on how the ECB views the latest wage growth figures. Retail Sales could be less impactful but may serve as a tie-breaker if data significantly diverge from expectations. From a technical perspective, we see EUR/USD trying to move beyond 1.1800, an area reached during late spring. If momentum is confirmed with data support or ECB clarity, it could break that point, prompting new interest from traders. On the downside, support sits around 1.1750, a level that has held through minor sell-offs in prior sessions. If sentiment changes and risk appetite fades, that boundary may be tested again. For now, the path remains moderately upward, largely influenced by external news rather than internal economic strength.
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