Euro Steadies as EU Delays Trade Retaliation

Key Takeaways:

*EU Delays Response to Tariffs: Euro steadies as Brussels postpones retaliation, opting for diplomacy over escalation.

*Growth Fragility Limits ECB: Stalled industrial output and weak GDP keep further easing on hold amid inflation risk.

*Tariff Deadline Looms: EUR/USD holds 1.1665 support, with August 1 set to define trade path and sentiment.

Market Summary:

The euro is treading water as the EU pushes back against escalating trade risks, opting to delay retaliation against U.S. tariff threats until early August. President Trump’s proposed 30% levy on European goods—slated to take effect on August 1—poses serious risks for the eurozone, particularly Germany’s export-heavy economy. While the EU has prepared tiered countermeasures targeting up to $72B in U.S. goods, policymakers are emphasizing diplomacy over escalation for now.

Despite this temporary relief, underlying macro conditions remain fragile. The European Central Bank has cut rates three times since 2024, bringing the deposit rate to 2%, but further easing may be on hold if tariffs spur inflation. Germany’s industrial output contracted again in May, and eurozone GDP growth is projected at just 0.9% in 2025. ECB models suggest a full-blown trade war could shave a percentage point off EU growth, raising the specter of stagflation. Geopolitically, France is pushing for tougher retaliation while Germany urges restraint, reflecting growing internal rifts within the bloc. Sectorally, industries like dairy and autos are sounding alarms, with French exporters warning of “damaging consequences” from U.S. actions. 

Geopolitical concerns also remain elevated. The Israel–Gaza conflict continues, and while ceasefire talks persist, the lack of progress has kept safe-haven flows concentrated in the dollar and gold—both of which rose sharply in recent sessions. The euro has struggled to gain traction amid this broader risk-off backdrop, particularly as the U.S. dollar remains bid on both macro and geopolitical grounds.Options markets suggest limited near-term volatility, but that may change as the August 1 deadline approaches. In the coming weeks, the euro’s direction will hinge on two interlinked factors: whether the EU and U.S. can avert a tariff escalation, and whether the ECB maintains its current policy stance amid deteriorating growth data.

With trade negotiations ongoing and the next ECB economic bulletin due on August 8, investors will likely remain cautious. Unless progress is made before August 1, or U.S. inflation dynamics unexpectedly shift, the euro may struggle to mount a sustained recovery. The currency remains vulnerable to both external trade shocks and internal policy uncertainty, keeping downside risks firmly in place through the summer.

Technical Analysis 

EURUSD, H4: 

EUR/USD has slipped lower in recent sessions, retreating from its late-June highs near 1.1840 and now hovering just above the 1.1690 support area. After several failed attempts to reclaim the 1.1750–1.1780 zone, the pair is showing signs of fatigue, pressured by a declining 50-period SMA and fading bullish conviction. The latest candles reveal a bearish bias creeping in, as price consolidates just beneath the cluster of short-term moving averages.

Momentum indicators reinforce the weakening technical picture. The Relative Strength Index (RSI) is trending downward, now at 42 and struggling to hold above its midline, reflecting diminishing buying pressure. Meanwhile, the MACD is flatlining just below the zero line, with the MACD and signal lines locked in a tight bearish crossover. This setup suggests that EUR/USD is lacking upward momentum and risks a deeper correction unless a catalyst emerges.

For now, EUR/USD remains in a technical holding pattern, weighed by soft momentum and key resistance overhead. Traders may be watching for a catalyst—such as U.S. inflation data or ECB commentary—to determine whether this drift turns into a deeper reversal or merely a pause in the broader uptrend.

Resistance levels: 1.1840, 1.1910

Support levels: 1.1610, 1.1490