Bearish view
- Sell the EUR/USD pair and set a take-profit at 1.1500.
- Add a stop-loss at 1.1725.
- Timeline: 1-2 days.
Bullish view
- Buy the EUR/USD pair and set a take-profit at 1.1725.
- Add a stop-loss at 1.1500.
The EUR/USD exchange rate remained in a tight range on Tuesday morning as investors reacted to the ongoing trade conflict between the United States and the European Union. It was trading at 1.1635, a few points above this week’s low of 1.1575.
European Considers Response to Donald Trump's Tariff Threat
The EUR/USD exchange rate rose slightly after Donald Trump announced that he would launch more tariffs on goods brought in the country from some European countries like Germany, France, and Denmark.
Trump is putting pressure on these countries so that he can get a chance to acquire Greenland, a semi autonomy country he has been eying since his first term. He believes that the US should own the island for national security reasons.
The EUR/USD pair also rose after an encouraging report by the Eurostat. In a report, the statistics agency said the bloc's inflation moved below the ECB’s target of 2% in December. The headline Consumer Price Index (CPI) dropped from 2.1% in November to 1.9% in December, while the core CPI fell from 2.4% to 2.3%.
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These numbers confirmed that the ECB had achieved its inflation target, meaning that it will not be under pressure to cut interest rates in the near term.
The next key catalyst for the EUR/USD pair will be the upcoming current account report by the European Central Bank. Economists expect the report to show that the current account figure will come in at €20.3 billion, down from the previous €25.7 billion.
The Supreme Court is expected to deliver its ruling on the legality of Donald Trump's tariffs later on Tuesday. Most analysts expect that the bank will rule against these tariffs, a move that will provide some relief in the market.
EUR/USD Technical Analysis
The daily timeframe chart shows that the EUR/USD exchange rate has retreated from the year-to-date high of 1.1805 to a low of 1.1580 this month. It rose slightly as the European Union considered ways to respond to Trump’s tariff threat.
The pair formed a bullish engulfing candlestick pattern, a common reversal sign. However, it remains below the 50-day moving average and the Supertrend indicator. It has also formed a head-and-shoulders pattern.
Therefore, the most likely scenario is where the pair continues falling, with the initial target being the year-to-date low of 1.1580. A move below that level will point to more downside to the psychological point at 1.1500.
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