EUR/USD drops as Trump reiterates tariff threats on Eurozone

EUR/USD falls to near 1.0460 as US President Trump reiterates threats to impose 25% tariffs on cars and other imports from the Eurozone.

The US Dollar steadies as Trump tariff threats have improved its safe-haven appeal.

Investors await the US PCE inflation data for January and preliminary HICP data of major Eurozone nations for February, scheduled on Friday.

EUR/USD faces pressure below the psychological level of 1.0500 in European trading hours on Thursday. The major currency pair drops as United States (US) President Donald Trump reiterated tariff threats on the Eurozone. 

President Trump said in a press conference on Wednesday that he will announce 25% tariffs on “cars and other things” on the Eurozone “very soon.” However, Trump didn’t provide a timeline for the tariff imposition. 

In response to Trump’s tariff threats, a European Commission (EC) spokesperson said, "The EU will react firmly and immediately against unjustified barriers to free and fair trade, including when tariffs are used to challenge legal and non-discriminatory policies.”

A tariff war between the US and the Eurozone would make the Eurozone economy vulnerable to growth, which is already fractured due to weak demand. Such a scenario would weigh on the Euro (EUR).

Meanwhile, uncertainty over the outcome of negotiations to form a German coalition government has also kept the Euro (EUR) on the backfoot. Victorious Frederich Merz’s conservative Christian Democratic Union of Germany (CDU) will most likely form the government with outgoing Chancellor Olaf Scholz’s Social Democratic Party of Germany (SPD). 

On Wednesday, Bundesbank President Joachim Nagel said in an interview with Reuters on the sidelines of a meeting of G20 finance chiefs that the new German government should address “structural faults” in the economy quickly to improve “Germany’s competitiveness”.

Daily digest market movers: EUR/USD remains on backfoot as US Dollar steadies

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• EUR/USD stays under pressure as the US Dollar (USD) holds onto Wednesday’s gains. Tariff threats from President Donald Trump to the Eurozone have improved safe-haven demand for the US Dollar. However, the upside in the USD remains capped due to an increase in Federal Reserve (Fed) dovish bets.

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• In Thursday’s session, investors will focus on US Durable Goods Orders for January, Initial Jobless Claims data for the week ending February 21, and the revised Q4 Gross Domestic Product (GDP) data.

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• Market participants have become increasingly confident that the Fed could reduce interest rates in the June policy meeting after keeping in the current range of 4.25%-4.50% in the March and May meetings. According to the CME FedWatch tool, there is a 68% chance that the Fed can reduce interest rates in the June policy meeting.

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• Traders raised bets supporting the Fed resuming the policy-easing cycle in June due to a decline in the US service sector activity in February, according to the flash S&P Global Purchasing Managers Index (PMI) report. Also, a sharp decline in the Consumer Confidence data in February has raised concerns over the Fed maintaining a restrictive monetary policy stance for longer. For more cues on the interest rate outlook, investors await the US Personal Consumption Expenditures Price Index (PCE) data for January, which will be released on Friday.

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• On the Eurozone front, investors await the flash inflation data of Germany and its six states, France and Italy, for February, which will be released on Friday. The inflation data will influence market expectations for the European Central Bank’s (ECB) monetary policy outlook.

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Technical Analysis: EUR/USD faces pressure above 1.0500

EUR/USD stays in a tight range at around 1.0500 on Thursday as the 50-day Exponential Moving Average (EMA) continues to support the major currency pair around 1.0440.

The 14-day Relative Strength Index (RSI) wobbles below the 60.00 level. A bullish momentum would activate if the RSI (14) manages to sustain above that level.

Looking down, the February 10 low of 1.0285 will act as the major support zone for the pair. Conversely, the December 6 high of 1.0630 will be the key barrier for the Euro bulls.