EUR/USD Weekly Forecast: Trump gives it, Trump takes it away

Once again, geopolitical woes were at the top of the list of market movers, and the outcome was not good for the US Dollar (USD). The Greenback was hit by uncertainty triggered by United States (US) President Donald Trump’s decisions.

Greenland, France, and more tariff threats

The week kicked off with President Trump threatening military intervention in Iran, amid local turmoil due to the economic collapse of the country. Protests spread throughout the country like wildfire, and the government sent its troops to the streets, which resulted in thousands of civil deaths. Trump warned that if the government “violently kills peaceful protesters,” the US “will come to their rescue.”

He then announced tariffs of 10% on eight European countries, claiming Denmark is unable to protect Greenland from China and Russia, and said levies will continue to increase until he gets a deal “for the Complete and Total purchase of Greenland,” according to what he posted on Truth Social.

Finally, he threatened to impose 200% tariffs on French wines and Champagne following France's intention to decline the invitation to join his ‘Board of Peace,’ an international organization established by Trump to promote peacekeeping. French President Emmanuel Macron is not alone in doubting joining the organization, which overlaps with the North Atlantic Treaty Organization (NATO) mandate, but also requires countries to pay US$1 billion for a permanent spot on this board.

As days went by, Trump initially dropped the tone on Iran, saying that the killing appeared to be ending, and later announced potential talks with Iranian leaders. By the end of the week, however, he shared “We have a massive armada heading in direction of Iran.”

Regarding Greenland, Trump announced a framework for a deal late on Wednesday and took tariff threats off the table. Nevertheless, there were no further details on what the deal would imply for any of the sides involved.

"Based upon a very productive meeting that I have had with the Secretary General of NATO, Mark Rutte, we have formed the framework of a future deal with respect to Greenland," he said on his Truth Social media platform.

Danish Prime Minister (PM) Mette Frederiksen and Greenland PM Jens-Frederik Nielsen both draw a sand line: whatever the deal is, sovereignty is out of negotiations.

Market participants were risk averse through the week, with modest spikes of optimism being quickly overshadowed by the following Trump comment.

Federal Reserve’s future

Meanwhile, the White House took time to accelerate the onslaught against the Federal Reserve (Fed). The US Department of Justice (DoJ) served subpoenas on Fed Chair Jerome Powell and threatened a criminal indictment for his testimony before Congress regarding the Fed’s headquarters renovation. In an unprecedented move, Powell responded by openly saying that such a probe is the result of the Fed’s refusal to cut interest rates following Trump’s wishes.

Fed’s noise, however, has not been loud enough, as Chairman Jerome Powell’s mandate will end this May. Whoever will come after him remains a mystery, as President Trump keeps saying he will “soon” announce Powell’s successor, but that “soon” is still to arrive. Speculative interest refrains from placing new bets on future Fed decisions as long as the next Chair remains unannounced.

Inflation risks tilt to the downside in Europe?

The European Central Bank (ECB) released the accounts of the December policy meeting, and the document showed some members of the Governing Council viewed inflation risks as tilted to the downside, adding that the inflation outlook continued to be in a good place. Members also noted that the latest staff projection had strengthened confidence in the medium-term outlook, and that the Government Council could be “patient.”

Earlier in the week, the Eurozone confirmed the December Harmonized Index of Consumer Prices (HICP) at 1.9% YoY, slightly below the previously estimated 2%. The core annualized figure printed at 2.3%, as expected.

Other than that, Germany published the January ZEW survey on Economic Sentiment, which improved to 59.6 from 45.8 in December, and to 40.8 from 33.7 in the Euro bloc. The assessment of the current situation in Germany printed at -72.7, better than the previous -81.

More Eurozone news came out on Friday. The preliminary estimates of the Hamburg Commercial Bank (HCOB) Purchasing Managers’ Indexes (PMIs) were mixed, as the Manufacturing Index improved to 49.4 from 48.8 in December, remaining in contraction territory, while the Services PMI resulted at 51.9, down from the previous 52.4. As a result, the Composite PMI held at 51.5, slightly below the 51.6 anticipated.

As has happened lately, news coming from the bloc fell short of boosting EUR demand. Whatever EUR/USD does is a result of the market’s sentiment and USD weakness or strength.

United States old news

The US published some first-tier figures that showed the economy continued to grow at a solid pace, while inflation did not overheat, despite tariffs and political turmoil. The positive headlines, however, did nothing for the Greenback.

The US published an update to the Q3 Gross Domestic Product (GDP), upwardly revising annualized growth in the three months to September to 4.4% from the previous estimate of 4.3%. Initial Jobless Claims for the week ended January 17 rose by 200K, slightly above the previous 199K, although better than the 212K anticipated by market players.

Additionally, the country released Personal Consumption Expenditures (PCE) Price Index data for October and November. The report showed that annual inflation rose to 2.8% in November from 2.7% in October, while the core PCE Price Index rose by 2.8% in November, following the 2.7% increasein October and matching market expectations.

Finally, S&P Global released the preliminary estimates of the US January PMIs. The Manufacturing PMI printed at 51.9, while the services index came in at 52.5, both slightly below expectations. The Composite PMI was reported at 52.8, marginally higher than the previous 52.7. The news had no relevant impact on the USD.

What’s next in the docket

The focus next week will be on the Fed, scheduled to hold its first monetary policy meeting of the year. Policymakers are widely anticipated to maintain the status quo, while investors will be looking at hints to confirm or deny a potential March interest rate cut.

Nevertheless, US President Trump has yet to announce Chair Powell’s replacement. Doing it around the time of the Fed’s announcement to overshadow it is quite a possible scenario. The Fed is widely expected to keep interest rates on hold, so the announcement per se should not impact financial markets. Hints on future action, or the lack of it, are also expected to have a limited effect on the USD, as long as the next Chair remains a mystery.

Other than that, the calendar will include little of relevance coming from the Eurozone, but Germany will offer the preliminary estimate of the Q4 GDP and the flash estimate of the January HICP.

EUR/USD technical outlook

The EUR/USD pair is technically bullish, trading not far below the January peak at 1.1768. The daily chart for the pair shows it trades above all its moving averages, with the 20-day Simple Moving Average (SMA) easing but holding above the 100- and 200-day SMAs, which trend higher. In fact, buyers surged on approaches to the longer one, currently at 1.1594, offering strong dynamic support. Closer lies the 20-day SMA at 1.1691. Meanwhile, technical indicators lack directional strength but remain between neutral and positive levels, reflecting the absence of follow-through rather than suggesting upward exhaustion.

In the weekly chart, EUR/USD recovered above a mostly flat 20-week SMA, which is well above the 100- and 200-week SMAs. All three remain below the current level, reinforcing bullish momentum, with the 20-week SMA at 1.1662 offering nearby dynamic support. At the same time, the Momentum indicator bounced modestly after testing its midline, while the Relative Strength Index (RSI) indicator trends higher at around 57, aligning with the bullish case. The pair topped at 1.1808 in December, and at 1.1918 back in September, both levels becoming potential bullish targets if the pair surpasses the aforementioned monthly high.

(The technical analysis of this story was written with the help of an AI tool.)