EUR/USD forecast: Euro rebounds but pressure remains amid tariff threats

The US dollar weakened slightly against most major currencies except the yen, though the overarching trend for the greenback retains a modestly bullish bias.  The EUR/USD forecast is thus still modestly bearish, even if the pair has shown a slight rebound from around the 1.0300 handle.

 

EUR/USD forecast undermined by tariffs and rate spreads 

 

After Friday’s NFP-related drop, the EUR/USD remains on the back foot following the weekend’s announcement of steel tariffs by Trump. The EU is now preparing for potential tariffs in other sectors, such as automobiles, which could further weigh on the euro. 

 

Besides tariff-related developments, the wide interest rate differentials between the Eurozone and the US continue to justify the EUR/USD trading near the 1.03 level. These spreads undermine the likelihood of any sustained corrective bounce. 

 

The European Central Bank is expected to deliver an additional 88 basis points of easing this year, while robust economic data in the US has once again pushed back expectations of rate cuts over there.

 

Combined with the looming threat of fresh tariffs, these factors suggest the EUR/USD forecast will remain under pressure. A move towards the 1.0200, or potentially lower, appears probable in the lead-up to the new tariff announcements. 

 

That said, while the EUR/USD remains offered, a potential positive catalyst in the coming weeks could be progress towards resolving the Ukraine conflict. 

 

There is some speculation that the US government may unveil further plans at the Munich Security Conference this weekend. However, any significant breakthrough with Russia would come as a major surprise and is not currently factored into FX markets. 

 

 

Dollar remains supported by tariff threats and energy prices 

 

The dollar continues to draw support from the ongoing tariff narrative, with markets closely monitoring developments. Reciprocal tariffs could be announced imminently, though it remains unclear whether these will target specific sectors—such as autos, pharmaceuticals, or semiconductors—or be applied more broadly. US President Donald Trump is reportedly set to sign another batch of executive orders today at 15:00 GMT, adding to the uncertainty. 

 

Additionally, a recovery in energy prices has provided further tailwinds for the greenback. Crude oil has staged a strong rebound over the past few days, while rising natural gas prices have become a key theme as Europe grapples with a cold snap and reduced Russian gas imports. 

 

Higher gas prices, coupled with geopolitical deals to secure US liquefied natural gas (LNG), are broadly supportive of the dollar. 

 

Focus on Fed Chair Powell’s Testimony 

 

It is a relatively quiet day on the US economic data calendar, but all eyes will be on Federal Reserve Chair Jerome Powell’s semi-annual monetary policy testimony to the Senate at 15:00 GMT. 

 

Given the current economic backdrop, with inflation expectations on the rise and jobs market remaining robust, Powell is unlikely to adopt a more dovish tone, and his remarks are expected to pose a neutral-to-positive event risk for the dollar. 

 

EUR/USD outlook: Risks tilted to the upside for the dollar 

 

Overall, the risks to the dollar’s outlook remain skewed to the upside, particularly if President Trump announces broader reciprocal tariffs. The combination of tariff threats, resilient US economic data, and supportive energy dynamics suggests the greenback could maintain its strength in the near term, keeping the EUR/USD forecast negative.

 

EUR/USD technical analysis

 

Source: TradingView.com

 

After finding good support around the 1.0200 area in early January and again last Monday, the EUR/USD has now formed support on the dip to around 1.0300 area. It should be noted, however, that the moving averages are still pointing lower, and that price is inside a larger structure of lower lows and lower highs. Against this backdrop, the recovery should be viewed as a corrective bounce than a trend reversal, until such a time a clear reversal pattern emerges. With that in mind, expect key resistance levels to provide a ceiling. The first key level of resistance is now seen around 1.0350, followed by 1.0430 and then 1.0500.

 

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R