Euro Technical Analysis: EUR/USD Spill as Threat of Trump Tariffs Hits Euro

Euro, EUR/USD Talking Points

• Last week opened with another 1.0500 test in EUR/USD, but Monday and Tuesday formed an evening star formation as looked at in last week’s webinar.
• So far, it’s been continuation from that formation with prices making a run on the 1.0200 level that was in-play to hold the lows a few weeks ago. But Trump volatility is back and he’s already pledged to levy tariffs on Europe ‘pretty soon,’ which is a driving force behind the early-week sell-off.
• I’ll be looking at EUR/USD in tomorrow’s webinar and you’re welcome to join: Click here for registration information.

It’s been a far different open for EUR/USD this week. While last week started with buyers continuing a pattern of higher-highs and higher-lows, this week started with a spill into a major support level as fears of tariffs have brought fresh question marks to the Eurozone.

The technical formation here was clean, as well, as last Monday’s doji showed right at the lower portion of a massive zone of support-turned-resistance. And then Tuesday saw sellers clawing back the prior Friday’s gains, which made for an evening star formation. And then sellers pushed red daily bars for the rest of last week, leading to this week’s push back-below the 1.0300 handle.

Sellers made a fast run towards the prior lows of 1.0200, but were unable to set a lower-low and price has since started to bounce. Also of note is the fact that the sell-off was largely showing at the open, and since then price has been clawing it’s way back on a shorter-term basis.

EUR/USD Daily Price Chart

EUR/USD: A Re-introduction to Trump

So far Trump’s focus on the tariff front has been Mexico and Canada, and this goes back to late-November, after the election, as the then President-elect was talking about incoming policy ideas. Initially he had said that tariffs on Canada and Mexico would come into effect on ‘day one,’ but on inauguration day he then said they would go into effect on February 1^st.

Last Friday, the day before the February 1^st deadline, was somewhat chaotic as an initial report indicated that tariffs would again be delayed until March 1^st, but the White House quickly walked that report back and instead held with the February 1^st deadline. The topic dominated the news flow over the weekend and at this point there’s still quite a bit of back-and-forth on the matter; but along the way Trump assured that he had plans for Europe, as well, although he has left that fairly opaque up to this point.

What we do know is that Trump has said that tariffs on EU goods could happen ‘pretty soon,’ and he went on to say “they don’t take our cars, they don’t take our farm products, they take almost nothing and we take everything from them. Millions of cars, tremendous amounts of food and farm products.”

Given the aggressive move in the pair to start this week, tariffs would seem to be a negative for EUR/USD price action, while a walking back or a cessation of fears around tariffs could be seen as a bullish factor. Thus, it would be a difficult environment to look for longer-term strength in the pair given the sheer unpredictability around when or where Trump may opine on European tariffs.

The more attractive backdrop, in that case, would appear to be waiting for lower-high resistance to appear so that if or when one of those comments hits the wire, short-side strategies could quickly become attractive again. And from last week’s price action there’s a couple of spots of note, such as the 1.0333-1.0343 prior support, or the 1.0406 Fibonacci level that had held the lows on Wednesday. Shows of resistance at either area keeps the door open for downside continuation, with 1.0200 the next major level, and below that the parity level becomes an obvious point of interest although that could be a tricky price, so traders may want to look for something like 1.0050, instead.

EUR/USD Four-Hour Price Chart

--- written by James Stanley, Senior Strategist