EURUSD Faces Pressure Amid Trade Tensions and ECB Policy Adjustments

The EURUSD pair struggled to maintain momentum around 1.0835 in early European trading on Monday, as concerns over a global trade war weighed on risk-sensitive assets like the Euro. Investors are awaiting key economic data, including Germany’s Industrial Production figures and the Eurozone Sentix Investor Confidence index, for further market direction. Despite holding above the 100-day Exponential Moving Average (EMA), the pair faces resistance at 1.0900, with further gains toward 1.0936 and 1.1000 possible if bullish momentum continues. However, the Relative Strength Index (RSI) at 71.30 signals overbought conditions, suggesting potential consolidation.

The Euro started the week on a positive note, reaching 1.0860 in the Asian session, driven by expectations of a U.S. economic slowdown. San Francisco Fed President Mary Daly highlighted rising business uncertainty, which could dampen demand, though she ruled out immediate interest rate changes. Additionally, weaker-than-expected U.S. Nonfarm Payrolls (NFP) data showed job growth of just 151,000 in February, falling short of forecasts and applying further pressure on the U.S. dollar.

Meanwhile, U.S. Commerce Secretary Howard Lutnick reaffirmed that 25% tariffs on steel and aluminum imports, set to take effect Wednesday, are unlikely to be postponed. While these tariffs aim to support domestic industries, they could also raise costs for manufacturers, fueling market uncertainty and potentially limiting the Euro’s upside.

On the European side, Germany’s proposed fiscal reforms provided some support for the Euro. The government announced plans to revise its debt brake policy, increase defense spending, and launch a €500 billion infrastructure initiative to stimulate economic growth. Additionally, European leaders agreed to boost defense budgets, strengthening the region’s economic outlook.

The European Central Bank (ECB) recently implemented a 25 basis point rate cut, signaling a shift toward less restrictive monetary policy. While additional cuts are expected, the ECB is taking a cautious approach, considering the impact of fiscal stimulus and improving economic conditions. Analysts now see a lower likelihood of rates falling below 2%.

Following the ECB’s decision, the Euro surged, with EURUSD climbing to 1.0825, marking a 4.33% weekly gain. The central bank now faces a delicate balancing act—while U.S. tariffs could justify further rate cuts, Europe’s fiscal expansion could reduce the need for aggressive monetary easing. Germany’s commitment to infrastructure and defense spending is expected to support long-term growth, potentially driving inflation higher than current forecasts suggest.

While the full effects of fiscal stimulus may take time to materialize, investor sentiment could see further improvement if geopolitical tensions ease. A potential ceasefire in Ukraine could accelerate spending and investment, reinforcing the Euro’s strength in the coming months.