Tariff uncertainty fuels dollar volatility: setups for EUR/US traders
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As the U.S. retreats from the brink of full-scale trade escalation, markets are recalibrating expectations. Washington's decision to delay tariffs on critical imports—including automobiles, semiconductors, and pharmaceuticals—has injected a layer of uncertainty into the macro outlook. While the U.S. dollar remains supported by safe-haven flows and relative economic strength, the longer-term implications of trade war rhetoric could prove more damaging to the U.S. economy than its global peers. For EUR/USD traders, this evolving dynamic presents both risk and opportunity.
U.S. Dollar Fundamentals: Resilience Masking Structural Fragility
Historically, the dollar tends to appreciate when the U.S. economy outpaces global growth—a trend evident through 2023 and 2024. Post-election optimism, built on expectations of tax cuts and protectionist policies, fueled broad dollar strength and pressured EUR/USD. Yet, underlying data is starting to tell a different story.
Despite Trump's tariff threats, the administration is now signaling restraint. Instead of blanket duties, the U.S. is targeting a narrower group of trading partners—the so-called "dirty 15"—and postponing broader measures. While this has kept dollar strength intact in the short term, analysts, including JP Morgan, warn that prolonged trade tensions could weigh more heavily on the U.S. economy than on global counterparts.
Indeed, forward-looking indicators are flashing caution. The U.S. manufacturing PMI dipped back below the critical 50 mark in March, highlighting contraction risk. Recession chatter is growing louder, and although historically self-reinforcing, such sentiment can dampen corporate investment and consumer confidence. The Fed remains cautious; Atlanta Fed President Raphael Bostic now anticipates just one rate cut in 2025, down from a prior forecast of two.
This uncertainty—combined with conflicting fiscal and monetary signals—is keeping the dollar elevated in the near term, but could sow the seeds for a broader correction as the macro backdrop softens.
EUR/USD Trading Plan: Short Bias Below 1.0855
EUR/USD remains in a corrective phase within an uptrend but is trading below a key resistance threshold at 1.0855. The pair is likely to remain pressured through the end of March, reflecting the "sell the rumor" phase tied to tariff developments. Once clarity emerges, however, the “buy the news” phase could spark a short-covering rally, especially if the euro holds key support levels and macro data out of Europe continues to stabilize.
Until a clear break above 1.0855 occurs, short trades remain technically justified, with room to test lower support levels. In the event of a daily close above 1.0855, traders should reassess the short bias and consider long setups targeting the next upside pivot zones.
U.S. Dollar Fundamentals: Resilience Masking Structural Fragility
Historically, the dollar tends to appreciate when the U.S. economy outpaces global growth—a trend evident through 2023 and 2024. Post-election optimism, built on expectations of tax cuts and protectionist policies, fueled broad dollar strength and pressured EUR/USD. Yet, underlying data is starting to tell a different story.
Despite Trump's tariff threats, the administration is now signaling restraint. Instead of blanket duties, the U.S. is targeting a narrower group of trading partners—the so-called "dirty 15"—and postponing broader measures. While this has kept dollar strength intact in the short term, analysts, including JP Morgan, warn that prolonged trade tensions could weigh more heavily on the U.S. economy than on global counterparts.
Indeed, forward-looking indicators are flashing caution. The U.S. manufacturing PMI dipped back below the critical 50 mark in March, highlighting contraction risk. Recession chatter is growing louder, and although historically self-reinforcing, such sentiment can dampen corporate investment and consumer confidence. The Fed remains cautious; Atlanta Fed President Raphael Bostic now anticipates just one rate cut in 2025, down from a prior forecast of two.
This uncertainty—combined with conflicting fiscal and monetary signals—is keeping the dollar elevated in the near term, but could sow the seeds for a broader correction as the macro backdrop softens.
EUR/USD Trading Plan: Short Bias Below 1.0855
EUR/USD remains in a corrective phase within an uptrend but is trading below a key resistance threshold at 1.0855. The pair is likely to remain pressured through the end of March, reflecting the "sell the rumor" phase tied to tariff developments. Once clarity emerges, however, the “buy the news” phase could spark a short-covering rally, especially if the euro holds key support levels and macro data out of Europe continues to stabilize.
Until a clear break above 1.0855 occurs, short trades remain technically justified, with room to test lower support levels. In the event of a daily close above 1.0855, traders should reassess the short bias and consider long setups targeting the next upside pivot zones.