EUR Vulnerable as Tariff Threats Collide with ECB Inertia

Key Takeaways:

*The euro remains vulnerable ahead of the August 1 tariff deadline, with stalled negotiations risking further downside for EUR/USD amid trade uncertainty.

*Muted inflation and weak industrial data have left the ECB in wait-and-see mode, with no near-term rate changes expected as economic fragility persists.

*France’s defense spending surge has lifted yields, but Macron’s pledge to avoid debt-funded expansion has helped contain broader eurozone fiscal concerns.

Market Summary:

The Euro remains under pressure as rising trade tensions and muted economic data cast a shadow over the eurozone’s growth prospects. President Trump’s latest tariff threat, which is a proposed 30% levy on €72 billion worth of EU exports has reignited fears of a transatlantic trade war, pushing EUR/USD toward the lower end of its recent range near 1.1670.

Brussels is scrambling to strike a negotiated settlement before the August 1 deadline, but the delay of EU countermeasures until August 6 suggests limited optimism. Failure to reach a compromise could significantly impair key export sectors, including autos and industrial goods, exacerbating the bloc’s growth challenges.

On the economic front, eurozone industrial production and German ZEW sentiment due this week will provide important signals on resilience. However, recent softness in the eurozone’s Producer Price Index (-0.1% MoM in June) and lingering inflation uncertainty have left the ECB firmly on hold. Market pricing reflects little confidence in near-term policy easing or tightening, with 2025 cuts currently expected to total just 40 basis points.

Geopolitical dynamics also remain fluid. France’s plan to double defense spending by 2027 has added upward pressure to bond yields, with 10-year OATs nearing 3.42%. Still, President Macron’s insistence on non-debt-financed spending has kept broader fiscal concerns at bay for now.

Looking ahead, the euro’s near-term fate hinges on two key variables: U.S. inflation data and EU-U.S. trade negotiations. A soft U.S. CPI print could blunt the dollar’s momentum and allow EUR/USD to stabilize, while a breakthrough in tariff talks could help lift the euro toward the $1.1700 resistance. Conversely, prolonged uncertainty or failed diplomacy may expose the pair to a retest of the $1.1600 support level.

Technical Analysis 

EURUSD, H4: 

EUR/USD is attempting to stabilize near the 1.1670 region after sliding steadily from its July peak around 1.1840. Price action has turned increasingly heavy in recent sessions, with the pair failing to reclaim its 50-SMA and 100-SMA , both of which are now sloping lower. A descending trendline from late June continues to cap recovery attempts, reinforcing the bearish bias and keeping the pair locked in a gradual downtrend.

Momentum indicators are painting a cautious picture. The Relative Strength Index (RSI) hovers at 41, indicating weak momentum but not yet oversold, suggesting further room for downside continuation before a potential exhaustion point. Meanwhile, the MACD remains in negative territory, with the histogram flatlining and the and signal lines locked in a minor bearish crossover. This reflects a lack of bullish momentum and an ongoing risk of further deterioration unless fresh buying interest emerges.

Resistance levels: 1.1690, 1.1840

Support levels: 1.1610, 1.1490