EUR/USD Faces Bearish Pressure: Will Tariffs Tip the Euro into a Deeper Downturn?

The EUR/USD currency pair remains a focal point for traders as it continues to navigate a volatile market environment fueled by geopolitical tensions, particularly in the form of tariffs and recession fears. Recently, the pair has been caught in a tug of war between bearish sentiment and bullish technical setups, leaving investors wondering where the next move will lead. As of early April 2025, EUR/USD has been hovering around the 1.0940 mark, with the potential to either break higher or retreat, depending on broader economic developments and market reactions to U.S. Federal Reserve actions.

US Dollar Slips Amid Tariff Uncertainty and Weak Sentiment

The U.S. Dollar Index (DXY), a key gauge of the dollar's strength, experienced a notable dip, falling to 102.68 on April 7th, 2025, after a brief rally earlier in the week. This slide occurred after hopes of a tariff pause, which had briefly lifted market sentiment, were dashed by a White House denial. Speculation about a potential 90-day tariff suspension had initially sparked optimism, driving risk assets higher and giving the dollar a boost. However, when this hope was swiftly contradicted by government officials, market sentiment turned sharply negative, pulling both equities and the dollar lower. This reversal highlights the fragility of market expectations and the ongoing risk aversion driving investors away from the greenback.

The immediate risk is the lingering uncertainty around the tariff situation, with the U.S. having already imposed tariffs on critical goods like steel, aluminum, and automobiles, directly affecting the Eurozone economy. Furthermore, the U.S. president's announcement of a 20% reciprocal tariff on Eurozone imports only adds more pressure on the euro. As a result, traders are now awaiting the U.S. CPI data for March, set to be released shortly, to gain clarity on inflation trends and the likelihood of future Fed policy moves. This data could ultimately shape the next leg of the EUR/USD trajectory.

EUR/USD Technical Outlook: Struggling for Direction

The technical outlook for EUR/USD remains somewhat bearish in the short term, despite the overall bullish undertone. The pair has recently been caught between soft upside pressure and fading momentum, with the exchange rate clinging to the crucial 1.0943 level. Trading just above its ascending trendline and the 200-day exponential moving average (EMA) at 1.0859, EUR/USD has been unable to extend beyond the 1.1000 resistance area. The 50-day EMA, located at 1.0944, is flattening out, signaling consolidation in the market, while the Relative Strength Index (RSI) is neutral, reflecting a lack of clear directional momentum.

The key levels to watch in the coming days are immediate support near 1.0920, followed by the 1.0888 region. If EUR/USD breaks below the 1.0920 pivot, it could face a test of the 1.0872 level or even lower, potentially signaling a corrective pullback. On the flip side, if the pair manages to hold above the support at 1.0920 and break through resistance at 1.1003, it may push toward the 1.1100 zone, but this would require a substantial shift in market sentiment, particularly in response to any surprises from upcoming economic reports or policy announcements.

The Bearish Impact of Trump’s Tariffs on the Eurozone Economy

The euro has recently faced significant pressure as fears of a Eurozone recession intensify, exacerbated by the U.S.'s 20% reciprocal tariff announcement on imports from the Eurozone. Market participants are increasingly concerned that these tariffs, combined with the ongoing economic uncertainties, could tip the region into a recession. As the tariffs target critical industries like steel and automobiles, many Eurozone countries are bracing for a sharp reduction in export demand, further dragging down economic growth.

This grim outlook has already led the market to fully price in a potential rate cut by the European Central Bank (ECB) in the near future. The current economic conditions in the Eurozone, compounded by the slowdown in growth and rising inflation, have left the ECB with limited options to support the economy. While the ECB may consider easing its monetary policy to support domestic demand, this could weigh on the euro even further, especially if U.S. economic data shows continued strength.

USD Outlook: Can the Dollar Hold Its Ground Amid Economic Slowdown?

While the euro faces headwinds, the U.S. dollar also struggles with its own set of challenges. Despite a temporary recovery from recent lows, the greenback remains under pressure as the risk of a recession grows and the U.S. Federal Reserve faces increasing difficulty in managing inflation. With market participants already factoring in further rate cuts, the outlook for the U.S. dollar remains fragile.

The U.S. dollar is unlikely to find sustainable strength unless there is a substantial shift in the economic landscape, such as a strong rebound in economic growth or a significant geopolitical development. In the short term, the dollar is expected to remain volatile, reacting to the ongoing tariff situation and the potential for further rate cuts.

EUR/USD: A Bearish Outlook With Potential for Short-Term Relief

Overall, the outlook for EUR/USD remains bearish, primarily driven by the ongoing trade tensions and the impact of tariffs on the Eurozone economy. The pair has been struggling to hold above the key 1.0943 level, and a breakdown below this area could open the door for further declines, potentially targeting 1.0872 or even 1.0800. While technical indicators suggest the potential for short-term relief, particularly if the dollar faces continued pressure, the broader trend remains tilted toward the downside.

The major risk to this outlook comes from any unexpected economic surprises, such as a sharp rebound in U.S. growth or an easing of trade tensions, which could temporarily strengthen the U.S. dollar and push EUR/USD lower. Additionally, the potential for an aggressive ECB rate cut could also act as a catalyst for further declines in the euro. Thus, traders should remain cautious, with key technical levels in mind, as the pair navigates this period of heightened uncertainty.

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