There will be no agreements! Tariff letters serve as an agreement. However, if Europe wants to negotiate, the US is ready to listen. That is Trump’s position, but his threats do little to scare investors. The TACO trade is gaining traction. Let’s discuss this topic and develop a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- Markets are not scared by Trump’s threats.
- A trade war will force the ECB to cut rates.
- Inflation data will determine the US dollar’s trajectory.
- Long positions can be considered if the EURUSD pair returns above 1.1715.
Daily US Dollar Fundamental Forecast
Donald Trump always retreats. The euro demonstrated resilience in the face of the US administration’s threat to impose 30% tariffs on the EU. The US president has taught the markets to expect extreme demands followed by delays or retreats. ING anticipates a more favorable outcome for Europe, which should ensure the stability of the EURUSD pair. However, it would be better to refrain from opening trades, as the release of US inflation data for June is imminent, and its implications could significantly impact the market.
In 2024, the US imported $606 billion worth of goods from the European Union and exported $370 billion. Foreign trade constituted 4.9% of US GDP, exceeding China’s figure of 2.2%. As a result, the deficit places the United States in a distinctly favorable position in the global trade war. Donald Trump’s attitude suggests a sense of triumph, and he has stated that there will be no agreement. The letters are already a deal. However, if the partners wish to negotiate a different deal, the US is always ready to engage in dialogue.
US Imports and Exports
Source: Wall Street Journal.
The EU has already prepared a list of US goods worth $77 billion that will be subject to import duties if no agreement is reached with Washington. This could potentially lead to a trade war, involving higher tariffs and a strategic waiting game to see who will make a slip first. However, the rapid resolution of the dispute with China indicates that this outcome is unlikely.
The ECB has considered a scenario in which the EU faces tariffs of 20% and retaliates. In this scenario, eurozone GDP is projected to grow by 0.5% in 2025 and 0.7% in 2026. If the 10% tariffs are imposed without retaliation, the currency bloc’s economy is projected to expand by 0.9% and 1.1%, respectively. A slowdown would result in a decline in inflation to 1.6% in 2026 and 1.8% in 2027. The European Central Bank would have to continue lowering rates.
The decision by the Fed to cut rates will depend on the US inflation data. According to the Wall Street Journal, consumer prices are projected to surge from 2.4% to 2.7% in June, with core CPI rising from 2.8% to 3%. This figure aligns with the forecast for the end of the year. In the event of a surge in inflation, it is likely to be transient.
US Inflation Change
Source: Wall Street Journal.
However, the extended period of stability in the international currency market indicates that traders are prepared to leverage the June statistics to their utmost potential.
Daily EURUSD Trading Plan
Should the actual data exceed forecasts, it will trigger a decline in the EURUSD pair. In this scenario, the focus should be on short trades at the market price or on a breakout of the support level of 1.164. Otherwise, the persistent reluctance of CPI to accelerate will reinforce the view that US tariffs are non-inflationary. In this case, the euro will likely resume its upward trend against the US dollar, and traders will be able to purchase the major currency pair at market prices or on a return above 1.1715.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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