EUR/USD Soars Amid China's Tariff Retaliation
EUR/USD Soars Amid China's Tariff Retaliation
The EUR/USD currency pair experienced a significant rally, reaching near the 1.1100 level on Wednesday. This sharp increase was driven by escalating tensions in the US-China trade war, putting pressure on the US dollar (USD).
China's Retaliatory Tariffs Intensify Trade War
Beijing announced increased tariffs on US imports, reaching as high as 84%. This move followed the US President's tariff hike on Chinese goods, pushing the trade conflict to new heights. The 84% tariff increase takes effect on April 10.
This escalation prompted concerns about a potential US recession, leading to increased expectations of interest rate cuts by the Federal Reserve (Fed).
Shifting Expectations for Fed Monetary Policy
The intensified trade war has shifted market sentiment regarding the Fed's monetary policy. The probability of a rate cut in May has jumped to 52.5%, according to the CME FedWatch tool, up from 10.6% just a week prior. Further rate cuts in June are also anticipated.
Minneapolis Fed President Neel Kashkari expressed concerns about the economic impact of the tariffs, warning of potential inflationary pressures, decreased purchasing power, reduced investment, and slower GDP growth.
Economic Data and Market Outlook
Market participants are closely watching the US Consumer Price Index (CPI) data for March, released on Thursday. The headline CPI is expected to rise by 2.6%, while core CPI is projected at 3%. Any deviation from these figures could significantly impact the Fed's future policy decisions and influence the EUR/USD.
The EUR/USD pair strengthened significantly during North American trading hours, nearing its six-month high of 1.1147. The technical outlook remains bullish, with support around the 20-day Exponential Moving Average (EMA) of 1.0856 and the 14-day Relative Strength Index (RSI) above 60.
Technical Analysis: EUR/USD Trends Bullish
Technically, the EUR/USD is poised for further gains, potentially targeting 1.1147. Support sits at the March 31 high of 1.0850. Key resistance remains at 1.1214 (September 25 high).
Conclusion
The EUR/USD's surge reflects growing concerns about the intensifying US-China trade war and its potential impact on the US economy. Market expectations for Fed rate cuts, coupled with the ECB's dovish stance, are contributing factors to the EUR's strength. The pair's volatility is likely to continue as markets await key economic data and policy decisions.
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