- The EUR/USD outlook shows growing trade tensions between the US and the Eurozone.
- Trump implemented a 25% tariff on steel and aluminum imports.
- US inflation increased by 0.2% in February, down from 0.5%.
The EUR/USD outlook shows growing trade tensions between the US and the Eurozone that are weighing on the euro. However, soft US inflation figures have also pressured the dollar, putting a floor on euro declines.
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On Wednesday, Trump implemented a 25% tariff on steel and aluminum imports, affecting major economies like Canada and the US. Both countries were ready to respond immediately with counter-tariffs. However, these trade wars will have a lasting impact on these economies, weakening their currencies. As a result, the euro eased slightly from its 5-month peak.
The dollar was also fragile as market participants feared a likely US recession due to the ongoing trade wars. Economic data has already signaled weaker demand. Moreover, inflation data on Wednesday came in below estimates. The monthly figure increased by 0.2%, down from 0.5%.
Meanwhile, the annual figure increased by 2.8%, down from 3.0%. If inflation has resumed its downtrend, policymakers will gain confidence that it will reach the 2% target. As a result, Fed rate cut bets increased, pushing the dollar down.
However, the path of inflation will also depend on Trump’s trade policies. As Powell noted last week, there was no rush to lower borrowing costs.
EUR/USD key events today
- US core PPI m/m
- US PPI m/m
- US unemployment claims
EUR/USD technical outlook: Price tests the 30-SMA support
On the technical side, the EUR/USD price has fallen to retest the 30-SMA support. However, the bias is bullish since the price is still above the SMA and the RSI is above 50. Bulls have maintained a steep rally until the price reached the 1.0901 resistance level. Here, price action showed a rejection of higher prices.
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At the same time, the RSI made a bearish divergence, indicating weaker momentum. This allowed bears to resurface and retest the 30-SMA support. If the price needs a deeper correction, it will break below the SMA, likely dropping to the 1.0701 support.
After this, bulls could return to seek new highs above 1.0901. Another possibility is that the price will bounce off the 30-SMA to seek a new high and continue the uptrend.
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