The US dollar was on the back foot in the first half of Wednesday’s session as the trade war enters a critical phase. Trump’s reciprocal tariffs day finally arrives later on, with risk sentiment remaining fragile following a bruising few weeks for global markets, especially Wall Street. With the exact scope of these measures still uncertain, you can understand why investors are cautious, reluctant to take on greater exposure to riskier assets just yet. The EUR/USD has not much in recent days, with the bulls not sure to press ahead given uncertainty about tariffs, while the bears have been discouraged by the €500 billion stimulus package that Germany has announced, which is expected to boost the economy and potentially lift inflation. The EUR/USD forecast should be come clearer in the second half of the week when we also have the monthly US jobs report to look forward to.

Reciprocal tariffs announcement coming up

The so-called “Liberation Day” for the US, according to Trump, is finally here, with the latest tariffs to be announced around 9pm London time, just after Wall Street closes. The US president hopes that higher tariffs will bolster domestic industry, create jobs, and even lift the stock market. However, markets have yet to respond as he might have wished. Investors remain wary, fearing that these measures could fuel inflation while simultaneously weighing on economic growth—a precarious mix for an already fragile market. The US dollar has also not found much love yet, suggesting investors think tariffs will do more harm than good to the world’s largest economy.

As far as the EUR/USD forecast is concerned, well it is not just the uncertainty surrounding Trump’s latest tariffs that is unnerving markets, but also the risk of retaliatory measures from affected nations, including the European Union. Such responses could inject further volatility, exacerbating an already uncertain financial landscape. The reciprocal tariffs are designed to counteract foreign levies on US exports. The White House insists these steps will “level the playing field,” yet critics warn they could provoke trade disputes, suppress global commerce, and ultimately stifle economic growth. 

This latest round of tariffs builds on earlier duties imposed on steel, aluminium, and imports from China, Mexico, and Canada, as well as the recently announced auto tariffs on European manufacturers. The new measures are expected to target countries with significant trade surpluses against the US, with levies ranging from 10% to as much as 50% on hundreds of products.  The European Union and Canada remain firmly in Trump’s crosshairs, with further tariffs threatened should their economic policies be deemed detrimental to US interests. 

US dollar hit by stagflation concerns

The US dollar has struggled to find momentum in recent time and remains largely out of favour so far this week, as investors pivot towards gold and the yen. This shift underscores mounting concerns over the resilience of the US economy, amplified by Donald Trump’s increasingly protectionist stance. 

Fresh economic data has only reinforced these worries. Yesterday, the ISM Manufacturing PMI fell short of expectations, coming in at 49.0 versus the forecasted 50.3. Meanwhile, the latest JOLTS Job Openings report also disappointed, with figures slipping to 7.57 million against an expected 7.69 million. But one figure that did surprise – albeit not many people trust it – was the ADP private payrolls report showing job gains of 155K vs. 118K eyed.

These latest figures follow a mixed bag of economic releases last week. Strength in Durable Goods Orders, the final Q4 GDP estimate, and Pending Home Sales provided some optimism. However, weaker readings in New Home Sales, Consumer Confidence, and Manufacturing PMI paint a more troubling picture. 

What truly unsettled investors, though, was Friday’s Core PCE index—the Federal Reserve’s preferred inflation measure—which came in higher than expected. Adding to inflation concerns, the University of Michigan’s inflation expectations survey jumped to 5.0%. With Trump’s tariffs yet to fully filter through economic data, Fed Chair Jerome Powell’s assurances that inflation remains under control will face a serious test in the weeks ahead.

This Friday, the focus will turn to the March non-farm payrolls report. Last month’s US jobs report surprised to the downside, coming in at 151K instead of 160K expected. Worryingly, the household survey showed job losses of 588K, and the unemployment rate ticked higher to 4.1% from 4.0%. The US dollar has since remained under pressure as weakening US data raised the prospects of a sooner-than-expected rate cut by the Fed. Another poor jobs report could further undermine the dollar and raise recession alarm bells.

What about the longer-term EUR/USD forecast?

As investors weigh the potential damage looming tariffs could inflict on the Eurozone economy—particularly its major carmakers—the near-term EUR/USD forecast remains highly uncertain. 

In the immediate term, further declines cannot be ruled out, as persistent trade uncertainty could see key support levels give way, potentially accelerating selling pressure in the days ahead.

However, taking a slightly longer view, the outlook appears more constructive for the euro. Germany’s approval of a substantial €500 billion stimulus package last month could provide a much-needed boost, particularly if investors begin to lose confidence in US economic policies. 

The package is designed to revitalise Europe’s largest economy and includes increased defence spending, which could bolster not just German GDP but also broader Eurozone growth, while introducing mild inflationary pressures. Against this backdrop, the euro may find stronger footing as market sentiment shifts in its favour.

Technical EUR/USD forecast: Key levels to watch

Source: TradingView.com

From a technical perspective, the EUR/USD forecast remains mildly constructive. While the pair has surrendered some ground over the past fortnight, it continues to hold onto much of the gains made in the first half of March, following the German stimulus-driven rally. Hovering near the key 1.0800 mark, a push towards the psychologically significant 1.10 level remains within reach. 

On the downside, the first key support level to watch is 1.0730, which aligns with the 200-day moving average. A break below this could open the door to 1.0700, with further downside risk towards 1.0630. Longer-term support now sits in the 1.0500–1.0530 range, a region that had previously attracted significant selling interest, until it finally gave way in early March.

To the upside, resistance is seen at 1.0800 and 1.0850, with 1.0900 acting as the final hurdle before the critical 1.10 handle. The coming sessions could prove pivotal in determining whether the pair resumes its upward trajectory or faces a deeper correction, as price action continues to coil within what appears to be a bullish continuation pattern—a descending triangle.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R