The Euro Benefits from USD Weakness, Hitting a Multi-Year High

Renewed Trade War Concerns

Risk appetite in the markets, along with US stock indices and the US dollar, declined after President Trump announced his intention to send letters to certain US trading partners, unilaterally imposing tariffs within the next week or two, before the end of the 90-day period during which tariffs were suspended to allow room for negotiations and a potential trade agreement. This move is seen as a sign that the negotiations may conclude without a deal, reigniting fears of a renewed trade war that had previously subsided. It is worth noting that the suspension period is set to expire on July 9, and President Trump has not ruled out the possibility of extending it if no trade deal is reached with some partners.

Notably, the Trump administration is currently in talks with India, Japan, South Korea, China, and the European Union. The US Secretary of Commerce mentioned the possibility of implementing the trade deal reached with the United Kingdom and moving closer to agreements with some of the other mentioned countries. However, he expressed dissatisfaction with the ongoing negotiations with the EU, suggesting they are not progressing as hoped and accusing the bloc of not negotiating “in good faith.” On the European side, some officials stated they lack clarity regarding what the Trump administration is seeking. The EU has proposed eliminating all tariffs on many products on both sides, but the US administration criticized non-customs-related taxes (such as the Value Added Tax, and the EU’s oversight of American technology companies).

Temporary Pause in European Rate Cuts

At the European Central Bank’s most recent press conference, ECB President Christine Lagarde stated that the euro is now well-positioned following the new interest rate of 2%, after a 25-basis-point cut at the previous meeting. Investors interpreted this as a signal that the ECB may be pausing (if not ending) its cycle of interest rate cuts that began mid-last year.

However, this is likely a temporary pause rather than a definitive end. The ECB’s chief economist later stated that the rate cut helps align interest rates with the 2% inflation target. Additionally, the ongoing uncertainty in US-EU trade negotiations and the potential for reciprocal tariffs if no deal is reached could negatively impact European growth and prompt the ECB to resume cutting rates to stimulate the economy.

EUR/USD at Multi-Year Highs

Today, the euro climbed to its highest level in several years, entering the trading zone between 1.1510 and 1.1715. A breakout above the resistance level of 1.1664 suggests that the pair may continue rising toward the high end of this zone.

A daily close above that high end would confirm strong bullish momentum and increase the likelihood of a move toward the 1.2000 level. Although, the resistance level at 1.1838 should be considered.

Key Levels to Watch if the Trend Reverses

A daily close below 1.1510, it may indicate some bulls exited their positions, weakening the upward momentum. This could lead bears to take the initiative and start a corrective move toward 1.1176. In this scenario, the support level at the 50-day moving average, should be monitored.

EUR/USD – Daily Price Chart

Chart Source: ADSS Platform