The EUR/USD pair is witnessing cautious movement as it hovers near the 1.1100 mark, weighed down by recent developments in US-China trade relations and lackluster progress in EU-US trade negotiations. The announcement of a temporary truce between the US and China has bolstered demand for the US Dollar (USD), keeping the Euro subdued despite minor intraday gains.
This topic is carefully unpacked in an in-depth article by Lesrouleaux brokers.
Trade Truce Boosts USD Sentiment
On Monday, Washington and Beijing agreed to reduce tariffs significantly for 90 days following a productive two-day meeting in Geneva. The accord led to a 115% reduction in tariffs, easing trade pressures that had previously burdened the global economy.
The revised structure now includes a 10% tariff on US goods and a 30% tariff on Chinese goods, though the 20% fentanyl levy on China remains intact. While the resolution is temporary, it represents a constructive shift in bilateral relations.
This news triggered an immediate surge in the US Dollar, with the US Dollar Index (DXY) holding gains near 101.60 during Tuesday’s European trading session. Simultaneously, US equity indices rallied, underscoring renewed investor confidence in the American economic outlook.
Fed Cautions on Inflation and Slowdown
Despite the trade truce, Federal Reserve officials remain cautious. Chicago Fed President Austan Goolsbee acknowledged the truce’s limited economic impact compared to previous expectations but warned of lingering stagflationary risks.
Goolsbee noted, “Tariffs are still three to five times higher than before, so it is going to have a stagflationary impulse on the economy.” This indicates that while tensions have eased, the threat of high inflation and slower growth remains significant.
The cautious stance from the Fed adds a layer of complexity for EUR/USD traders, especially with expectations for US inflation data due later in the day. The US Consumer Price Index (CPI) for April, scheduled for release at 12:30 GMT, is projected to show a steady year-on-year increase of 2.4% (headline) and 2.8% (core), respectively. Should the figures surpass expectations, it may reinforce the Dollar’s strength and further weigh down the EUR/USD pair.
EUR/USD Outlook Hampered by EU Trade and ECB Dovishness
While the US and China make headway in their trade talks, the European Union (EU) and the United States remain at an impasse. The EU has not advanced in discussions with the US since the US President’s announcement of reciprocal tariffs, and in response, the European Commission has initiated public consultations for countermeasures on €95 billion worth of US imports.
This lack of progress poses a threat to the Euro’s stability, especially amid fears of escalating EU-US trade tensions. The uncertainty adds downward pressure on EUR/USD, which is already facing bearish pressure from ECB monetary policy expectations.
Market participants are increasingly betting that the European Central Bank (ECB) will proceed with an interest rate cut in June, given officials’ dovish tone and confidence in disinflation trends. The ECB believes price pressures will ease toward the 2% target by year-end, diminishing the urgency for tight monetary policy. This policy divergence with the Fed, where inflation remains a concern, further tilts the balance in favor of the US Dollar.
Technical Analysis: EUR/USD Remains Bearish Below 1.1100
Technically, the EUR/USD pair is trading cautiously near a one-month low, having dipped significantly on Monday after breaking below the key support range of 1.1200–1.1440, which had held for the previous 20 sessions. The move confirms a bearish trend, emphasized by the price slipping below the 200-period Exponential Moving Average (EMA)—a widely watched long-term technical indicator.
The 14-period Relative Strength Index (RSI) is now below 40.00, suggesting the emergence of fresh bearish momentum. This implies that any short-term gains could face stiff resistance unless fundamental drivers shift significantly.
Resistance Level: The next major resistance stands at the April 28 high of 1.1425.
Support Level: On the downside, the March 27 low of 1.0733 becomes a crucial support level that Euro bulls must defend to prevent deeper losses.
Conclusion
The EUR/USD remains under pressure as geopolitical and economic developments continue to favor the US Dollar. The temporary US-China trade truce has revived USD demand, while the lack of EU-US trade progress and dovish ECB signals cloud the Euro’s outlook.
Additionally, with US CPI data looming, the pair is unlikely to break significantly higher in the near term unless the figures disappoint markedly.
With technical indicators flashing red and fundamental headwinds intensifying, the EUR/USD could remain vulnerable to deeper losses unless a positive shift in European economic policy or sentiment emerges.
