EUR/USD Forecast: Trump's tariffs and the NFP may send it down

EUR/USD's attempts to recover have stalled as markets digest Trump's new Chinese tariffs.
US Non-Farm Payrolls and trade developments are eyed.
Friday's four-hour chart points to further losses for EUR/USD.

A busy week has become even busier – and traders can point the finger to US President Donald Trump for that. The White House has shocked markets by announcing a 10% tariff on around $300 billion of imported Chinese goods – the remaining ones that have so far been spared of levies.

The surprising decision has triggered a sell-off in stock markets and sent US bond yields lower – thus weighing on the greenback against some other currencies. EUR/USD has emerged from the lows but failed to recapture the previous 2019 low of 1.1101.

The picture may change if stock markets extend their downfall. The US dollar is a safe-haven currency that may draw demand. The Japanese yen – the go-to currency in times of trouble – has already been gaining. The greenback may be next, resulting in pressure on EUR/USD.

According to reports, Trump and his senior cabinet advisors have taken the decision after the US trade delegations returned from the first face-to-face talks with their Chinese counterparts in Beijing. The president has said that negotiations were not moving fast enough and that Chinese President Xi Jinping has broken his promise to buy US agricultural goods.

However, some traders see the timing of the decision – one day after the Fed signaled it is unlikely to cut rates further – as far from being coincidental. Fed Chair Jerome Powell has used the word trade 26 times in his post-decision press conference. Tensions about global commerce and somewhat subdued inflation were the reasons for the move, while upbeat domestic economic figures have limited the scope for further action.

The suspicion is that Trump would like to force the Fed's hand into more cuts. Following the duties announcement, bond markets now reflect an almost certain chance of a rate cut in the Fed's upcoming meeting in mid-September.

Focus shifts to the Non-Farm Payrolls

The flare-up in the trade war is somewhat overshadowing today's top-tier event – the US Non-Farm Payrolls. Nevertheless, the "king of forex indicators" is set to rock markets. Economists expect an increase of around 170K jobs in July, down from 224K in June. Average Hourly Earnings – which may have a greater impact due to the Fed's focus on inflation – are set to rise by 0.2% on a monthly basis and 3.2% on a yearly one.

Thursday's US ISM Manufacturing PMI has somewhat dampened expectations after printing a score of 51.2 points for July – below estimates. However, Wednesday's upbeat ADP private-sector jobs report – coming out at 156K – has boosted expectations.

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With no substantial release in Europe, the jobs report will compete with Trump's trade wars for market movements.

EUR/USD Technical Analysis

The Relative Strength Index on the four-hour chart has risen above 30 – exiting oversold conditions and allowing for fresh falls. Momentum remains to the downside and the currency pair continues trading below the 50, 100, and 200 Simple Moving Averages.

Some support awaits at 1.10790 which is the daily low. 1.1027 – the lowest level in two years recorded on Thursday – is critical support. The next lines are 1.0960 and 1.0900, dating back to 2017.

Some resistance awaits at 1.1101, the previous 2019 low which now turns into resistance. It is followed by 1.1160 that capped EUR/USD early in the week, and by 1.1190 which was a swing high last week. 1.1240 is next.

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