Euro Forecast: EUR/USD Rally on Tariff Delay

Euro Talking Points:

• It was a strong week for the single currency particularly against the U.S. Dollar as the imminent threat of tariffs took a step back.
• This isn’t necessarily a risk that can be dismissed yet as Trump warned that tariffs on autos are on the way. So while price action in EUR/USD retains a bullish look, there could be a continued sense of vulnerability.
• I’ll be looking at EUR/USD along with several other USD pairs in next Tuesday’s webinar: Click here to register.

EURUSD AD

It was a strong week for EUR/USD and the pair is now back to re-testing the 1.0500 level. While the fundamentals around the Eurozone can’t really be qualified as ‘great,’ and while U.S. inflation remains high, there’s clearly another drive point here and that saw some relaxation last week after President Trump announced reciprocal tariffs. There was a growing sense of concern that tariffs may be levied aggressively on Europe and this is something we can see impacting the pair on the open two weeks ago, following comments from Trump that European tariffs were coming ‘pretty soon.’ He went on to say ““they don’t take our cars, they don’t take our farm products, they take almost nothing, and we take everything from them. Millions of cars, tremendous amounts of food and farm products.”

The weekly open after that comment was made, EUR/USD sold off quickly, but held support above the prior 2025 low around the 1.0200 handle. And since then, it’s largely been a theme of recovery, with a strong push on Thursday after reciprocal tariffs were announced, going along with a support break in the US Dollar.

The driving item wasn’t necessarily the reciprocal tariffs themselves but the implementation date of April 1^st, which removed some pressure from the situation, allowing EUR/USD to rally back to the 1.0500 handle.

EUR/USD Daily Chart

 Chart prepared by James Stanley; data derived from Tradingview

EUR/USD Technical Structure

EUR/USD sellers ran into a massive spot of support a couple of weeks into the New Year as there are two Fibonacci levels of note right at the 1.0200 handle. And then the sell-off in early-Feb saw that price defended, leading to a higher-low. But the recovery from that sell-off remained cautious as Trump had later announced that reciprocal tariffs were coming and given the comment that had caused the sell-off in the pair about tariffs coming ‘pretty soon,’ it was obvious that this week’s announcement was something that had constrained the bullish theme in EUR/USD.

But on Thursday when the reciprocal tariff announcement came, even though it could have consequence for Europe as Trump said that VAT would be considered as a tariff that the U.S. would match, it was the implementation date that seemed to allay alarm. And that led to a support breach in the USD and the rally in EUR/USD that pushed the pair back to the 1.0500 handle.

One might even think that we’ve seen the apex of the struggle, and that a month and a half brings ample time for resolution. But caution should remain, as the reciprocal tariff announcement also brought warning that tariffs would be coming on automobiles, and from the above quote, cars were the first item mentioned by Trump.

President Trump could keep this topic in the headlines by focusing auto tariffs on Europe which would be a large negotiation chip, and this is something that could similarly be seen as bearish for the Euro and bullish for the USD, and I’d also expect it to have a bearish U.S. equity component which is why I’d question the potential for follow-through.

In that event, I’d look for pullbacks to hold higher-lows, and the 1.0400 area would be ideal for such as this had held resistance in the prior week and there’s two different Fibonacci levels in tight proximity.

EURUSD AD

EUR/USD Daily Price Chart

EUR/USD Bigger Picture

Taking a step back to the weekly chart and that 1.0533 Fibonacci level becomes a bit more important. That’s the 78.6% retracement of the December-January major move, and that’s the price that has so far held the 2025 high.

If bulls can force a break, the door opens to re-test of that prior high, which is confluent with the longer-term Fibonacci level at 1.0611. In that scenario, we’re likely looking at DXY driving back into its prior range, and it would seem that some help would be needed here for that outcome, something more than just Trump delaying tariffs or perhaps avoiding an announcement on tariffs on autos. This would probably need some negative U.S. data, and/or some positive European data to drive a break of 1.0630 in EUR/USD.

EUR/USD Weekly Chart

--- written by James Stanley, Senior Strategist