EUR/USD faces pressure as Trump's tariff threats improve USD's appeal

EUR/USD declines to near 1.0370 as inflation in six states of Germany decelerates in January.
Donald Trump threatens to impose 100% tariffs on BRICS and 25% on Mexico and Canada.
The Fed kept interest rates at their current levels on Wednesday.

Sagar Dua FXStreet

EUR/USD remains under pressure as the US Dollar (USD) performs strongly, with the US Dollar Index (DXY) refreshing a weekly high around 108.35. The safe-haven appeal of the Greenback strengthens as United States (US) President Donald Trump reiterated his intentions of imposing hefty tariffs on his North American peers and BRICS on Thursday.

Donald Trump said on his social media platform, TruthSocial, that he requires a commitment from the BRICS that it will “neither create a new currency nor back any other currency” to replace the US Dollar. Trump threatened that any country tries should “face 100% tariffs”, and expect to say “goodbye to selling into the wonderful US economy.”

Market experts believe that Donald Trump is using tariff measures as a tool to fulfill his economic agenda, and the imposition of hefty tariffs will be inflationary for the US economy. Such a scenario would support the Federal Reserve (Fed) in holding its stance of keeping interest rates unchanged in the range of 4.25%-4.50% for longer.

On Wednesday, the Fed maintained the status quo and guided to remain in the waiting mode until the central bank sees any “real progress in inflation or some weakness in the labor market”.

Meanwhile, the US core Personal Consumption Expenditure Price Index (PCE) data for December have met expectations. The core PCE inflation, the Fed's preferred inflation gauge, rose by 0.2%, as expected, faster than the 0.1% increase in November. Year-on-year, the core PCE rose in line with estimates and the previous release of 2.8%.

Daily digest market movers: EUR/USD weakens as Euro underperforms on ECB dovish bets

EUR/USD faces selling pressure and declines to near 1.0370 in Friday’s North American session. The major currency pair declines as the Euro (EUR) weakens across the board amid a slowdown in the German Consumer Price Index (CPI) data for December. The inflation report showed that the German CPI deflated by 0.2%, while the data was expected to grow at a slower pace of 0.1%, compared to a 0.5% increase in December on month. Year-on-year German CPI decelerated to 2.3%, while economists expected it to grow steadily by 2.6%. Meanwhile, the Harmonized Index of Consumer Prices (HICP) rose in line with estimates on month as well as annual basis.
Softer-than-expected Consumer Price Index (CPI) data for January boosts confidence that Eurozone price pressures are on track to return sustainably to the European Central Bank’s (ECB) desired rate of 2%, which will support the central bank in easing the monetary policy.
On Thursday, ECB President Christine Lagarde showed confidence in announcing a victory over inflation this year in the monetary policy statement after the central bank reduced its Deposit Facility Rate by 25 basis points (bps) to 2.75%. In Friday's European session, ECB policymaker and Estonian Central Bank chief Madis Muller also said that it is realistic for inflation to be near 2% "by the middle of this year".
Christine Lagarde’s comments at the press conference indicated that the ECB has kept the door open for further policy easing. Lagarde said that we are still in “restrictive territory” and it is premature to “anticipate at what point where will stop”. She avoided providing a pre-defined interest rate cut path and reiterated that we decide meeting by meeting based on data.
Going forward, investors will focus on the flash Eurozone Harmonized Index of Consumer Prices (HICP) data for January, which will be released on Monday.

Technical Analysis: EUR/USD dribbles below 50-day EMA

EUR/USD declines to near 1.0370 in North American trading hours on Friday, below the 20-day Exponential Moving Average (EMA) around 1.0390. The major currency pair resumed its correction after failing to sustain above the 50-day EMA, which trades around 1.0449 at the press time.

The 14-day Relative Strength Index (RSI) faces barricades near 60.00. Such a scenario indicates that the recovery move was short-lived.

Looking down, the January 20 low of 1.0266 and January 13 low of 1.0177 will act as major support for the pair. Conversely, the December 6 high of 1.0630 will be the key barrier for the Euro bulls.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

AUD/USD hits nine-week lows below 0.7000 on RBA Bullock's remarks

AUD/USD reverses a brief uptick and turns lower to hit nine-week lows below 0.7000 in the European morning on Tuesday, as traders digest cautious remarks from Reserve Bank of Australia (RBA) Governor Michele Bullock during the press conference. Earlier on, the RBA raised the cash rate to 4.60%, as widely expected, leaving the door open to further rate hikes if needed.

USD/JPY consolidates near 157.50 as a bullish USD counters intervention risks

USD/JPY struggles to capitalize on the overnight bounce from a one-week low, consolidating around 157.50 in the Asian session on Tuesday. Trump's concerns about the Japanese Yen's weakness fueled speculation about another US-Japan joint intervention. This, along with the hawkish BoJ, underpins the JPY and caps the currency pair. Meanwhile, rising Fed rate-hike bets and oil-driven inflation fears continue to push US bond yields to multi-year highs, keeping the US Dollar pinned near a two-month high and supporting the pair.

Gold: Bulls seem hesitant as Fed hike bets, higher bond yields, and bullish USD cap upside

Gold clings to modest recovery gains through the first half of the European session, albeit it lacks follow-through and remains below $4,150. Moreover, the bearish fundamental backdrop keeps the precious metal within striking distance of the lowest level since August 4, around the $4,100 neighborhood touched on Monday, and warrants caution before positioning for any meaningful appreciation.

Chainlink trims gains after CCIP 2.0 launch, Swift ledger integration

Chainlink (LINK) edges below $15.00 on Tuesday, trimming its 10% gains from the previous day, driven by the launch of its new Cross-Chain Interoperability Protocol 2.0 and Swift ledger integration for tokenized deposits and 24/7 cross-border payments.

Focus turns to US job openings

In the euro area, focus turns to the September flash inflation print for Spain which will give the first indication of where the euro area data on Friday lands. We expect a modest rise in headline due to higher energy costs and a small increase in core inflation. We also receive the European Commission's business survey for September.

Fed vs BoJ: Both hiked. The market only believes one of them – and the chart shows which

The Fed and the BoJ have just done something remarkably similar. Both central banks raised interest rates by 25 bps last week, both are confronting inflation risks, and both signal that future decisions will depend on incoming economic data.