The EUR/USD exchange rate jumped to the highest point since May 8, even after Donald Trump threatened to impose additional tariffs on the European Union, a move that will impact annual trade worth over $1.6 trillion. It rose to 1.1365, up by 2.7% from its lowest level this month.
US and EU trade relations
The EUR/USD closed higher on Friday after Trump complained of the slow pace of negotiations between the US and the European Union.
In a post on Truth, he warned that the US would impose a 50% tariff on all goods coming from the European Union.
Such a move would attract counter-tariffs from the EU, effectively disrupting one of the most important trade relationships. Data shows that the goods volume between the two countries rose to $975 billion in 2024. Including services, the volume jumped to over $1.6 trillion.
The European Union has warned that it would respond to those tariffs by imposing its retaliation measures. These measures will include tariffs on Boeing planes and agricultural products.
Trump argues that the EU takes advantage of the US, pointing to the large trade deficit, huge fines on American companies like Google and Apple, Value Added Tax (VAT), and other non-tariff barriers.
Why the EURUSD pair rallied
Historically, the EUR/USD should have fallen when Trump announced the new tariffs since the US dollar is seen as a safe haven.
However, the opposite happened for three main reasons. First, it rose as most analysts believe that the 50% tariff threat was a form of his negotiation style as he did with China when he pushed levies to 145%.
Second, the euro rose because some investors and analysts see it as a better alternative to the greenback because of the erratic US policies. This explains why the euro has been in an uptrend since Trump started his trade war.
Third, the price action was a continuation of the ongoing US dollar index crash as concerns about the US economy remains. Moody’s has already downgraded the US credit rating, pointing to the surging debt.
At the same time, the Trump administration is moving ahead with a tax-cutting program that will add the public debt by over $4 trillion in the next decade.
Top catalysts for the EUR vs USD
The next top catalysts for the EUR/USD pair will be the upcoming US consumer confidence report on Tuesday. This is an important figure that influences consumer spending, the biggest part of the economy.
The other key catalyst will be the FOMC minutes of the last meeting that will come out on Wednesday. These minutes will provide more information on what happened in the last meeting.
The US will then publish the latest GDP data on Thursday and the PCE inflation report on Friday.
EUR/USD technical analysis
The daily chart shows that the EUR/USD pair has jumped in the past few weeks, moving from a low of 1.0178 in January to 1.1365. It has already formed a golden cross pattern as the 50-day and 200-day Exponential Moving Averages crossed each other.
The pair has also formed a cup and handle pattern, a popular bullish continuation pattern. Therefore, the pair’s path of least resistance is upwards, with the next point to watch being the year-to-date high of 1.1572. It needs to move above that level to invalidate the forming double-top chart pattern.
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