EUR/USD Bounces Off Lows, Climbs Back to 1.1330 as Trump Tariff Threat Sparks Volatility
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The EUR/USD currency pair found strong buying interest near the 1.1300 neighbourhood on Thursday, recovering from intraday lows around 1.1270 to revisit the 1.1330 area by early European trading. This rebound came despite renewed concerns over escalating U.S.–Europe trade tensions after President Trump threatened a straight 50% tariff on a range of European imports. The threat weighed on sentiment earlier in the session, briefly pushing EUR/USD to test key support levels, before risk appetite returned and propelled a moderate rally.
Volatility spiked following the tariff announcement, underscoring how geopolitics can quickly upend the technical outlook in the major FX crosses. Traders initially sold the euro on the back of headline risk, but the combination of attractive valuation around the 1.1300 round number and a fading dollar bias offered sufficient support for a rebound. Over the next 24 hours, the pair will likely remain sensitive to further trade comments from Washington as well as high-impact U.S. and Eurozone economic data.
Technical Analysis: Key Support and Resistance Levels
– Immediate Support: 1.1280–1.1270 (200-period SMA on the 4-hour chart, 38.2% Fibonacci retracement of the latest uptrend)
– Next Support: 1.1200 (static level, psychological) and 1.1180 (50% Fibonacci retracement)
– Immediate Resistance: 1.1380 (23.6% Fibonacci retracement)
– Next Resistance: 1.1430 (static level) and 1.1500 (round number)
On the 4-hour timeframe, the Relative Strength Index (RSI) climbed back above 60 after briefly dipping toward the mid-50 region, signaling renewed bullish momentum. EUR/USD found buyers directly on the 200-period simple moving average (SMA), which has acted as dynamic support throughout May. A close above 1.1380 would open the door to 1.1430, while failure to hold above 1.1280 could invite deeper retracements toward the 1.1200 area.
Fundamental Drivers: Trade Tariffs and Economic Data
The latest move in EUR/USD reflects a tug-of-war between U.S. political risk and fundamental economic releases on both sides of the Atlantic. After President Trump’s tariff pronouncement, market participants fear a renewed escalation in the U.S.–Eurozone trade dispute, which could dampen growth outlooks on both continents. That risk offset, to some extent, supportive technical factors around the 1.1300 region.
On the data front, S&P Global’s preliminary Composite Purchasing Managers’ Index (PMI) for May showed U.S. private‐sector activity accelerating to 52.1 from 50.6 in April, driven by upticks in both the Services PMI (52.3) and Manufacturing PMI (52.3). While these numbers underline the resilience of U.S. growth, their impact on dollar demand was muted, as investors remain increasingly cautious about the U.S. fiscal trajectory.
U.S. Debt Concerns Weigh on the Dollar
Despite the upbeat PMI print, the dollar’s advance was short-lived as traders grappled with the prospect of a $3 trillion increase in national debt proposed under President Trump’s recent tax and spending package. The bill passed the House by a razor-thin margin and faces a Senate vote after Memorial Day (May 26). With U.S. Treasury yields already elevated, further fiscal expansion could exacerbate borrowing costs, prompting risk reversal and tempering dollar strength.
Eurozone Outlook: Wage Growth Eases
In Europe, the European Central Bank’s (ECB) Q1 wage report eased one area of inflation concern, showing negotiated wage rates up 2.38% year-on-year versus 4.12% in Q4. Cooler wage growth may reduce the urgency for hawkish ECB rhetoric, keeping rate-cut expectations alive and limiting euro upside in the near term. However, persistent political uncertainty in key member states and slower industrial output readings suggest that any sustained rally above 1.1400 could face stiff resistance.
Market Sentiment and Newsflow
– EUR News Headlines:
- “EUR/USD rebounds back above 1.1300 after Trump tariffs shock sparks volatility” (Christian Borjon Valencia, 48 min ago)
- “EUR/GBP consolidates on positive UK Retail Sales and Trump’s EU tariff threat” (Tammy Da Costa, CFTe®, 16:49 GMT)
- “EUR/JPY slumps to near 161.00 as Trump threatens 50% tariffs on Eurozone” (Sagar Dua, 14:54 GMT)
– Volatility: The Deutsche Bank FX volatility index jumped to 9.5% intraday, the highest level since early May, reflecting elevated headline risk.
Economic Calendar: What to Watch Next
With few top‐tier releases left on the docket before the weekend, traders will likely focus on Fed Chair Powell’s comments for clues on U.S. monetary policy and any hints at how tariffs may influence growth expectations. In Europe, Lagarde’s remarks could help define the ECB’s next move in response to both domestic inflation dynamics and external trade pressures.
Trading Strategies and Risk Management
- Range Trading Near 1.1300–1.1380: Given the current technical and fundamental backdrop, range-bound strategies between 1.1280 and 1.1380 remain attractive. Entry can be considered on a dip toward the lower bound, with profit targets near the upper range.
- Breakout Approach: A decisive break above 1.1380 on strong volume could signal a shift toward 1.1430–1.1500. Conversely, a drop below 1.1270 exposes 1.1200 as the next downside target.
- Event-Driven Trades: Be wary around Powell’s speech and the ECB press conference; use tight stops or stay sidelined during key live events to avoid sharp whipsaws.
- Position Sizing: Limit exposure to 1–2% of account equity per trade and adjust position sizes based on implied volatility and setback levels.
Short-Term Outlook
EUR/USD’s immediate bias remains neutral-bullish as long as it holds above 1.1280. The 1.1380 mark is the critical hurdle to watch; a close above could retest month-highs near 1.1430. With markets digesting trade headlines and central bank cues, momentum shifts may be rapid, so disciplined entries and exits are essential.
Long-Term Perspective
Beyond the next few sessions, the interplay of U.S. fiscal policy, Eurozone wage dynamics, and political developments will dictate the medium-term trend. If U.S. debt concerns intensify and the ECB maintains its accommodative stance, the euro could gradually appreciate toward parity levels of 1.1500–1.1600. On the other hand, a broader risk-off wave sparked by an escalation in tariff rhetoric may drag the pair back toward 1.1200 or lower.
Conclusion
EUR/USD’s bounce off the 1.1300 zone illustrates the resilience of technical support amid heightened geopolitical tensions. Traders should monitor key levels at 1.1280 and 1.1380 for guidance on the next directional move, while staying attuned to Fed and ECB communications, U.S. fiscal developments, and any fresh tariff announcements. By blending technical triggers with fundamental insights, market participants can navigate the current volatility landscape with greater confidence.