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

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.