Tariff Shock Remains Uncertain! Rally in EUR/USD Faces Headwinds

Summary:

European Central Bank (ECB) President Christine Lagarde stated on Monday that while the central bank is currently in a favorable position, it must maintain "flexibility" in setting monetary policy. Lagarde reiterated that policymakers will adjust interest rates "meeting by meeting" and emphasized that the balance of risks remains "broadly balanced."

SELL EURUSD

EXP

TRADING

1.17781

Entry Price

1.15000

1.20000

1.17724 -0.00009 -0.01%

0.0

Pips

Flat

1.15000

Exit Price

1.17781

Entry Price

1.20000

Fundamentals

On Monday, ECB President Christine Lagarde said that although the central bank is in a strong position, it must remain "flexible" when formulating monetary policy. She repeated that rate adjustments will be made on a "meeting-by-meeting" basis and stressed that the risk is "broadly balanced." While the U.S. Trade Representative has assured that existing agreements with about 20 countries remain unchanged, uncertainty still surrounds whether new tariffs will take effect immediately in the EU. A surprise rise in Germany's business confidence index to a six-month high provided additional support for the euro. Investors are closely monitoring the inflation data from Germany, France, and Spain to assess how a stronger euro may affect price pressures and the ECB's policy outlook. According to a survey released on Monday, German business confidence improved more than expected in February, with both current conditions and future expectations showing gains. The Ifo Business Climate Index rose to 88.6 in February, up from 85.7 in January, beating analysts' forecast of a slight increase to 88.4. Clemens Fuest, President of the Ifo Institute, said, "The German economy is showing the first signs of a recovery." Satisfaction with current operating conditions also increased, with the corresponding sub-index rising to 86.7 from 85.7 in January. Expectations have also improved, with the expectations index reaching 90.5 in February, up from 89.6 in the previous month. Robin Winkler, Chief German Economist and Head of German Macro Research at Deutsche Bank in Frankfurt, noted that the economy is gathering momentum and growth this year could exceed general expectations. However, external uncertainties remain high. Carsten Brzeski of ING remarked that the German economy would seem unusual if it were free of potential risks. The latest round of tariff-related remarks by Trump brings greater trade war risks than last year, compounded by a stronger euro and severe winter weather, creating fresh downward pressure. Since the February surveys failed to consider these developments fully, the subsequent trend in sentiment remains uncertain.

After the U.S. Supreme Court ruled on the 20th that the federal government had overstepped its authority in imposing large-scale tariffs, President Donald Trump immediately issued an executive order announcing a 10% import tariff on goods from all countries and regions starting February 24th, 2026. On the 21st, he further raised the newly imposed "global import tariff" from 10% to 15%. The lack of clarity in trade policy could cast a shadow over the global economic outlook and keep market volatility elevated. Investors are beginning to price in higher risk premiums for U.S. assets. Nick Twidale, Chief Market Analyst at AT Global Markets, said they had too much experience with Trump to think he'll back down easily. The uncertainty and open questions surrounding his next moves outweigh any potential positives from lower tariffs or possible retaliation. In a research note, Goldman Sachs strategists, including Kamakshya Trivedi, pointed out that broad-based dollar weakness may reflect renewed policy uncertainty stemming from the court ruling. Policy uncertainty is particularly significant for the dollar because it can negatively impact investor and business activity. Regardless of which direction tariffs move sharply, the dollar will depreciate. Nick Twidale, Chief Market Analyst for the Australia region in AT Global Markets, added that Trump won't stop here, according to what they know about him. Rising uncertainty and unanswered questions around his next steps overshadow any positive effects from tariff reductions or potential gains. Morgan Stanley expects reduced scope for the U.S. administration to use immediate tariff authorities as tools of foreign policy, which could marginally lower the negative risk premium on the dollar related to investors' caution toward holding dollar exposure. However, offsetting factors may sustain or even widen this negative risk premium, including geopolitical uncertainty and doubts surrounding U.S. monetary policy. Additionally, there could be a mechanical positive impact on global growth, as implementing tariffs under different authorizations takes time and may occur at lower levels, potentially boosting global growth expectations and further weighing on the dollar. Therefore, Morgan Stanley continues to expect the dollar to depreciate.

Technical Analysis

Based on the weekly chart, EUR/USD shows an upward opening Bollinger Band with diverging moving averages. However, while price makes new highs, the MACD bullish momentum gradually weakens—a signal of bearish divergence—suggesting a likely correction ahead. Immediate support lies near the 12-period EMA and the Bollinger Middle Band at approximately 1.175 and 1.170, respectively. The RSI stands at 56, indicating optimistic market sentiment, but the declining RSI peaks suggest a higher probability of further declines. Regarding the 4-hour chart, the Bollinger Bands are opening downward, with moving averages diverging to the downside. The MACD and signal lines have broken below the zero line, potentially forming a death cross, signaling a bearish phase that is likely to persist. Price is falling strongly along the 12-period EMA, with no clear signs of weakening in the short term. The RSI is at 42, approaching oversold territory. As long as price fails to break above the 12-period EMA effectively, the bearish trend will remain intact. In the short term, selling at highs is recommended.

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Tariff Shock Remains Uncertain! Rally in EUR/USD Faces Headwinds_2

Trading Recommendations:

Trading direction: Sell

Entry Price: 1.18

Target Price: 1.15

Stop Loss: 1.2

Support: 1.17/1.16/1.15

Resistance: 1.2/1.208/1.21

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Tariff Shock Remains Uncertain! Rally in EUR/USD Faces Headwinds

Risk Disclosure