EUR/USD Pulls Back Amid US Fiscal Stimulus and Tariff Uncertainty
- Currency pairs
- Market Analysis
Market Overview
EUR/USD shows a mild pullback as investors digest fresh developments around US fiscal stimulus and escalating trade tensions. The US Senate recently passed a significant fiscal package, marking a key legislative victory for President Trump’s agenda, while the House prepares for a crucial vote amid skepticism from some GOP lawmakers. The uncertainty surrounding the final approval of this “One Big Beautiful Bill” and its implications for US debt and inflation weighs on market sentiment.
Simultaneously, tariff threats targeting BRICS countries have spooked global markets, with President Trump warning of additional 10% duties. This escalation, alongside upcoming tariff impositions, fosters risk aversion, pushing safe-haven demand and supporting the US dollar. Meanwhile, the European Central Bank (ECB) signals a cautious stance after eight consecutive rate cuts, with markets pricing in limited further easing this year, sustaining the euro near recent highs but curbing momentum.
Technical Analysis
The EUR/USD 4-hour chart reveals a pullback from the recent highs near 1.1789, with the pair testing support around the 61.8% Fibonacci retracement level at approximately 1.1745. Price has moved below the short-term 20-period moving average but remains above the key support near 1.1717, signaling a cautious pause in the uptrend.
Key support levels lie at 1.17448 (61.8% Fib retracement) and 1.17170 (last market bottom). Should the pair break decisively below 1.17170, further downside targets include Fibonacci extension zones at 1.16972 (127.2%), 1.16869 (141.4%), and 1.16721 (161.8%). The 200% extension near 1.16443 would mark a significant bearish milestone.
Momentum Indicators
The RSI is neutral to slightly bearish near 47, indicating room for further downward movement before entering oversold conditions.
The MACD histogram is declining, and the MACD line is below its signal, confirming short-term bearish momentum.
The Stochastic Oscillator is heading downward from mid-range, suggesting potential continuation of the correction.
Alternative Scenario
If EUR/USD holds the support at 1.1745 and rebounds, a retest of the 1.1789 resistance zone is possible, potentially setting the stage for a renewed uptrend. A break above this level could open the way to 1.1800 and beyond. Conversely, a break below 1.1717 would increase the risk of a deeper correction toward 1.1680 or lower extension targets.
Fundamental Outlook
On the trade front, uncertainty persists as President Trump prepares to issue tariff letters to major economies, including BRICS countries, delaying the initial July 9 implementation to August 1. This extension injects short-term relief but prolongs uncertainty, pressuring risk-sensitive currencies like the euro.
Meanwhile, the ECB, having cut rates eight times since June 2024, signals a pause amid inflation aligning closer to its 2% target and ongoing trade disputes, limiting euro upside. Upcoming eurozone PMI and inflation data will be closely watched to gauge the ECB’s future policy direction and economic resilience.
Conclusion
This nuanced dynamic between US fiscal expansion, trade uncertainty, and cautious ECB policy is setting the tone for EUR/USD’s near-term movements. Market participants should watch key technical levels and upcoming data releases to navigate potential volatility.