EUR/USD Gaps Lower as Trump's Tariff War Escalates
EUR/USD gapped lower this morning, driven by Donald Trump’s fresh round of tariffs, reigniting fears of a global trade war. The US Dollar’s safe-haven appeal surged, putting the Euro under pressure.
Fundamentals Weighing on EUR/USD
The ongoing trade war between the US and key trading partners has created fresh uncertainties, with Trump’s tariffs on imports from Canada, Mexico, and China exacerbating tensions. A 25% tariff on goods from Canada and Mexico, alongside a 10% tariff on Chinese imports, is raising concerns about the impact on global trade and economic growth. In the wake of these announcements, the US Dollar has strengthened, further pressuring the EUR/USD pair.
The Euro is also weighed down by diverging monetary policies between the Federal Reserve and the European Central Bank (ECB). The ECB recently cut interest rates, citing concerns over sluggish growth in the Eurozone, while the Federal Reserve has maintained its stance, holding rates steady at 4.25%-4.50%. Additionally, weak economic data from Europe, including a 0.2% contraction in Germany's Q4 GDP and a modest 0.9% annual gain for the broader Eurozone, contrasts with the more resilient US economy, which posted 2.3% GDP growth in Q4, despite coming in below expectations.
Gap Signals Burst of Bearish Momentum
This morning’s large gap lower in EUR/USD is significant, signalling a sharp increase in bearish momentum aligned with the dominant downtrend. EUR/USD has been trending lower for the last six months, leading to a bearish crossover of the 50-day moving average below the 200-day moving average. After hitting fresh trend lows in mid-January, the recent rebound found resistance at the 50-day moving average before rolling over at the end of the month, forming a new lower swing high.
With the gap lower, the RSI has dropped sharply but remains above oversold territory, while price action is now looks set to test key support around January’s swing lows. Looking ahead, volatility is expected to remain high as markets react to Trump’s trade policies and anticipate Friday’s non-farm payrolls data. Expect the top and bottom of the gap to serve as resistance going forward, shaping near-term price action in the EUR/USD pair.
EUR/USD Daily Candle Chart
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