Fundamental Overview
USD:
The US Dollar weakened broadly at the start of the week following an escalation by President Trump over Greenland. The US President threatened to impose a 10% tariff from 1 February on the UK, France, Germany and several other European countries unless the US is allowed to purchase Greenland. These tariffs would increase to 25% from 1 June if no deal is reached.
As seen last year, risk-off moves triggered by Trump’s tariff threats often stem from concerns about economic growth. These worries tend to lead to stock market sell-offs and declines in Treasury yields, which reflect expectations of future economic weakness. This, in turn, puts downward pressure on the greenback due to anticipated earlier or more significant rate cuts by the Federal Reserve.
It is important to consider these factors relative to market expectations. The recent rally in the US Dollar had been driven by slightly hawkish repricing, but the latest escalation has unwound some of those gains. Should tensions ease, the Dollar would likely rally again, especially if forthcoming economic data strengthens in the coming weeks and months.
EUR:
Regarding the Euro, the threat of tariffs on major European economies is undoubtedly negative, but given existing market positioning, it has impacted the US Dollar more heavily. The Federal Reserve has greater scope to cut interest rates compared to the European Central Bank (ECB), which has already reached a neutral stance with inflation close to target.
On monetary policy, the ECB remains neutral, emphasising a data-dependent and meeting-by-meeting approach to decisions. ECB members continue to maintain that the current policy is appropriate and they will not react to minor or short-term deviations from their 2% inflation target. This neutral stance is supported by recent inflation data, which has surprised to the downside.
EUR/USD Technical Analysis – Daily Timeframe
The daily chart shows EUR/USD opening lower but subsequently closing the gap and extending gains up to the downward trendline. Sellers are likely to enter around this level, with a clearly defined risk above the trendline, positioning for a drop towards the 1.15 level. Conversely, buyers will be looking for a break above the trendline to push the pair up towards the 1.18 resistance level.
EUR/USD Technical Analysis – 4 Hour Timeframe
The 4-hour chart provides clearer insight into today’s price action, showing the pair struggling to extend gains near the trendline. Sellers will likely seek short opportunities around this area, maintaining risk above the trendline. Buyers will wait for a confirmed break above the trendline to target new highs.
EUR/USD Technical Analysis – 1 Hour Timeframe
On the 1-hour chart, the price is trading near the upper bound of the average daily range, suggesting limited upside potential today. The price may consolidate or pull back from this level.
There is minor support around the 1.16 handle. Should the price test this zone, buyers are expected to step in with risk defined below the support, aiming for a breakout above the trendline. Sellers will look for a break below this support to increase bearish positions targeting lower levels.
Upcoming Catalysts
Upcoming economic releases include the weekly US ADP jobs data tomorrow, US Jobless Claims figures on Thursday, and Eurozone and US Flash PMIs on Friday. Additionally, traders should monitor headlines and President Trump’s posts on Truth Social related to Greenland, as market attention remains focused on this unfolding trade dispute.
Original Source: Giuseppe Dellamotta of investinglive.com
