Euro Struggles Beneath Sanctions and Tariff Risks

Key Takeaways:

*Geopolitical support from EU sanctions is offset by internal ECB policy divisions and labor unrest.

*U.S.-EU tariff tensions loom large, with up to €380B in exports at risk if trade talks collapse.

*The eurozone economy shows signs of fragility, with weak construction data and slowing trade balance gains.

Market Summary:

The euro maintained a modest upward bias against the U.S. dollar, underpinned by the EU’s announcement of its 18th sanctions package on Russia, which included a lowered oil price cap. The move was interpreted as a reaffirmation of the bloc’s geopolitical stance, helping to anchor the currency in the face of rising global volatility. However, EUR gains have remained limited amid structural challenges, including widening trade frictions with the U.S. and persistent divisions within the European Central Bank.

While the eurozone’s current account surplus (€32 billion in May) offered some support, deteriorating construction output (-1.7% MoM) and the risk of retaliatory U.S. tariffs on up to €380 billion of EU exports remain front and center. President Trump’s demand for a 15–20% baseline tariff on EU goods alongside his rejection of auto-sector exemptions—has intensified fears of a transatlantic trade war. Dutch and Polish officials have already floated countermeasures should U.S. trade talks collapse, threatening to escalate tit-for-tat trade measures into a broader economic drag.

Monetary policy developments remain another constraint. The ECB’s 2025 Strategic Review drew criticism from labor unions for prioritizing inflation control over wage growth and climate targets, adding political complexity to an already cautious Governing Council. Although no rate cuts are expected in the near term, a dovish tilt at the upcoming meeting could increase pressure on the euro, particularly if global growth sentiment continues to soften.

Technically, EUR/USD remains vulnerable to downside breaks, with support near 1.1555 and resistance capped at 1.1690. Market focus will remain on the outcome of U.S.-EU tariff talks, ECB policy communication, and broader global risk sentiment.

Technical Analysis

EURUSD, H4

EUR/USD remains consolidating below key resistance after failing to reclaim the 1.1690 zone. The pair extended its decline after rejecting the descending 200-period SMA, with price action now caught between soft support at 1.1590 and overhead resistance. The bearish structure remains intact, as sellers continue to defend lower highs and the pair trades beneath all major short-term moving averages. The prior breakdown below the 100-SMA and the rejection at the 1.1660 handle confirmed a shift in sentiment, with upside moves lacking follow-through and appearing corrective.

Technical signals continue to lean bearish. The 20- and 50-period SMAs are pointing downward, reinforcing the near-term selling pressure. RSI hovers around the 40 level and remains below the neutral line, while MACD momentum is muted, with no meaningful crossover in sight. These readings suggest that any recovery attempts are likely to face selling into strength. A sustained break below 1.1590 would confirm a continuation of the bearish trend, opening downside extension targets toward 1.1470.

As long as price remains capped below the 1.1660 pivot, the path of least resistance favors further downside. The 1.1690 area now acts as a critical ceiling that only a decisive reclaim above this range, preferably on rising volume, would neutralize the bearish bias. Until then, traders may view rallies as opportunities to fade, particularly on failed tests of prior support turned resistance.

Resistance Levels: 1.1690, 1.1840
Support Levels: 1.1590, 1.1470