The EUR/USD pair pulled back on Thursday, shedding nearly 0.3%, as markets braced for an extended trade dispute between the European Union (EU) and the United States. The retreat came after US President Donald Trump intensified tariff threats, raising concerns about further economic disruptions.
US-EU Trade War Heats Up
The Trump administration’s 25% import tax on steel and aluminum has triggered retaliatory tariffs from key US trading partners, including the EU, which has imposed duties on Harley-Davidson motorcycles and US-distilled whiskey. In response, Trump threatened a 200% tariff on European wines and champagne via social media, unsettling global markets and fueling fears of an all-out trade war.
Investors are now looking ahead to Friday’s US consumer confidence and inflation expectations reports, as concerns mount over the economic impact of these escalating trade disputes.
Economic Data in Focus
The German Harmonized Index of Consumer Prices (HICP) for February is set for release early Friday. However, given that it is a final, non-preliminary figure, it is unlikely to significantly impact market sentiment.
In the US, attention turns to the University of Michigan (UoM) Consumer Sentiment Index and Consumer Inflation Expectations. Economists expect the sentiment index to decline to 63.1 in March, down from 64.7 in February, reflecting growing consumer anxiety. Inflation expectations remain elevated, with respondents projecting a 3.5% inflation rate over the next five years, well above the Federal Reserve’s 2% target.
EUR/USD Price Forecast: Bullish Momentum Fades
The EUR/USD rally appears to be losing steam after briefly surging past the 1.0900 mark. The pair has gained nearly 7.6% from its last major swing low at 1.0175, breaking above its 200-day Exponential Moving Average (EMA) in the process.
However, technical resistance at 1.0900 has proven difficult to overcome, as it previously stalled Euro bulls in October and November of last year. If selling pressure intensifies, EUR/USD could see further downside, with key support levels near 1.0800 and 1.0750.
Market Outlook
With US-EU trade tensions escalating and Trump’s tariff rhetoric unsettling markets, EUR/USD traders will closely monitor upcoming economic data and Fed policy signals. A weaker US consumer sentiment report could pressure the US Dollar (USD), but persistent inflation expectations may limit the Fed’s flexibility in cutting rates, creating a mixed outlook for the currency pair.
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