EUR/USD rose to 1.0500 as investors shrugged off renewed concerns over tariffs. US President Donald Trump reiterated that his plan to impose 25% tariffs on Canada and Mexico will remain in place.
Even though some of Trump’s comments raised concerns about an escalation in trade wars, EUR/USD made gains during North American trading. Indeed, the US dollar (USD) fell significantly, pushing the US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, down to 106.45.
Speaking on Monday, Trump confirmed that plans to impose tariffs on Mexico and Canada are still in place and that the target date is March 4. This statement came after the tariffs were postponed for a full month due to an agreement between the two countries on tightening border measures.
US Economy Between Inflation and Demand
In the context of the US economy, durable goods orders and the personal consumption expenditures (PCE) price index are likely to stimulate the US dollar. Analysts will release these data on Thursday and Friday, and investors expect them to significantly impact the dollar’s movements. The Federal Reserve prefers the PCE index as its inflation gauge. Some officials have expressed concerns about the recent halt in price deflation, which could reflect rising inflationary pressures.
The upcoming economic data are expected to have a direct impact on the dollar’s path, as investors will focus on any shifts in inflation..
German Economy Faces Tariffs
Concerns persist about the impact of tariffs on the German economy. Many analysts believe that Germany, as a country that relies heavily on exports, will be among the most affected. Earlier this month, Joachim Nagel, the president of the German central bank, said that the German economy is “particularly vulnerable” to tariffs that Trump may impose.
Euro Crisis: Concerns over German Economic Policy
In Europe, the euro is experiencing uncertainty due to the political situation in Germany. Although the euro has risen against other currencies, there are doubts about the negotiations to form the next German government.
Friedrich Merz, leader of the Christian Democratic Union (CDU) party and the likely next German Chancellor, will face tough negotiations to form a coalition government. His economic agenda centers on easing the “debt brake” rule to increase the budget deficit. Currently, the deficit cap is 0.35% of GDP, which Merz is seeking to increase.
Despite expectations of forming a coalition government with the Social Democratic Party led by Olaf Scholz, there are doubts about cooperation with the far-right Alliance for Germany (AFD). This situation is raising serious concerns in the markets about the stability of German economic policy.
Eurozone wage data: Negative signals
Eurozone negotiated wage rates for the fourth quarter showed a decline to 4.12%, compared to 5.43% in the third quarter. The decline reflects weak wage growth in the region, raising concerns about the stability of the European economy. The slowdown in wage growth is an unwelcome signal for the European Central Bank, which is facing challenges from rising prices and inflation.
In addition, ECB Governing Council President Isabel Schnabel said that the bank may announce a pause in the monetary policy expansion cycle. She had warned that domestic inflation remains high and wage growth remains above expectations, amid fresh energy price shocks. The slowdown in wage growth is likely to reinforce expectations that the ECB will cut interest rates this year.
What’s next for the euro?
As for the technical analysis of the EUR/USD pair, the pair seems to be facing a challenge to break above the 1.0500 level. Over the past week, the pair has been struggling to break this crucial level. However, the 50-day EMA remains a key support at 1.0440.
The 14-day Relative Strength Index (RSI) is showing oscillations near the 60 level. If the RSI manages to hold above this level, the bullish momentum could increase.
Support and Resistance Zone:
If the pair pulls back lower, it could face strong support at the low of 1.0285 recorded on February 10. If the pair breaks the 1.0500 level, the key resistance will be at 1.0630, the high of last December.
Forward Outlook:
The markets seem to remain on the lookout for several key factors that will influence future trends. The most prominent of these factors are the political situation in Germany and global trade developments. In the US, US economic data, including inflation data and consumer confidence indicators, will be pivotal in determining the dollar’s movement in the coming days.
Short-term outlook:
In the short term, the EUR/USD pair is expected to continue its movements around the 1.0500 level. The pair will be able to break this level if it receives additional support from economic data or if trade tensions ease. On the other hand, if concerns over tariffs continue, the pair may witness a decline towards support levels.
The markets are currently going through a period of turmoil due to increasing political and economic concerns. At the same time, investors are looking forward to a set of economic data that will help determine future trends. For the EUR/USD pair, the major challenges lie in trade tensions and changes in European and US economic policies.
