Insights 
VT 
EUR/USD has shed some of its early gains due to a threat from US President Trump to impose 50% tariffs on the Eurozone. This comes after the US Dollar weakened amidst ongoing fiscal imbalance concerns, as Trump’s tax bill is projected to escalate national debt by $3.8 trillion over ten years.
Following Trump’s tariff threats, EU-US trade tensions remain unresolved, with US Trade Representative criticising EU’s tariff proposals. The US imported $605.8 billion worth of goods from the EU, illustrating the continent’s substantial trade surplus with Washington.
eur/usd market response
Despite these tensions, EUR/USD remains near 1.1330 as the US Dollar Index (DXY) falls to a two-week low. Moody’s recently downgraded the US sovereign credit rating, citing consistent high fiscal deficits.
The impending US tax bill, with potential inflationary impacts, may deter Federal Reserve from reducing interest rates. In the Eurozone, Q1 Negotiated Wage Rates have declined, pushing the ECB towards potential further rate cuts.
ECB policymaker Nagel expressed caution over further cuts, noting current borrowing costs are not restrictive. Meanwhile, the Euro saw an underperformance following weaker-than-expected PMI data indicating a decline in business activity.
EUR/USD currently faces technical pressure around the 1.1370 mark, with the 20-day EMA holding at 1.1255. The 14-period RSI is near 60.00, with resistance at 1.1425 and key support at 1.1000.
exchange rate dynamics
For those of us closely monitoring exchange rate dynamics and volatility plays, this week’s developments serve as a reminder to adjust positioning carefully given the shifting undercurrents in monetary policy expectations and trade rhetoric.
The initial bump in EUR/USD was quickly eroded after a policy broadside from across the Atlantic. The mention of a potential 50% tariff on Eurozone exports by the US President sent shockwaves through early sentiment, with markets quickly pricing in increased risk premiums. From our desk, this marks a jarring shift in trade outlook that demands a higher level of caution across directional strategies, especially where Euro strength is assumed to extend.
On the surface, the pair has retained proximity to the 1.1330 figure, though the hold appears fragile. This is supported by declining US Dollar Index values, which recently touched a fortnight low. That weakness is not happening in a vacuum; rather it coincides with renewed scrutiny on long-term fiscal health in Washington. Moody’s downgrade of US sovereign credit, tied to structurally high deficits, adds further deterioration to the Greenback’s macro profile.
Yet we must be wary of overcommitting to Dollar downside. The tax proposals look poised to inject price pressures, which in turn could box the central bank into a corner. Any notion that the Federal Reserve would be free to pivot dovishly is at odds with rising inflation risks triggered by expanded fiscal stimulus. Hence, the front-end of the US curve may retain bid support, limiting outright Euro upside unless fresh data supports it decisively.
Frankly, things aren’t looking too solid in the bloc either. Latest wage data softened across the union, a variable under normal circumstances that would embolden the central bank to hold or even reverse easing. Still, policymaker Nagel has poured cold water on hopes of immediate deep rate cuts. According to him, the cost of borrowing hasn’t reached shrinkage levels that necessitate urgent action. That reluctance leaves Euro sensitivity high, especially with PMI numbers slipping below neutral.
When we examine the technical conditions, 1.1370 presents itself as a near-term ceiling. The 20-day EMA sits visibly lower at 1.1255, implying a moderate risk of backward movement in the event of another policy disappointment or poor data from the bloc. Resistance at 1.1425 would require both stronger local data and clearer rate expectations. Meanwhile, we keep an eye on the 1.1000 area as the downside anchor, a breach of which would signal momentum likely turns against Euro-backed trades.
Current positioning should factor not only the news-driven shifts but also the longer-term pivots around fiscal health, rate policy balance and residual stress from protectionist threats. Vol widening scenarios above implied levels become more probable in such transitions, favouring optionality if leveraged exposure becomes difficult to hedge outright.
The next few sessions will inevitably lean on fresh rhetoric from Washington and Frankfurt – we’d advise daily reassessments for any position held overnight, especially near headline risk events or data drops. This isn’t the moment for wide stops or unhedged carry builds beyond short-term horizons. We’re trimming bias where RSI inches too close to momentum caps without supportive data confirmation. This shows up especially around technical resistance zones where overstretched Euro longs may begin to unload positions quietly.
