After the worst three-day plunge since 2020, global stocks were showing signs of life in the first half of Tuesday’s session. Risk appetite improved a little, as traders were encouraged by talk of possible US trade negotiations. Trump’s latest comments suggest he’s open to trade talks — but let’s not get ahead of ourselves. This could turn out to be just a relief rally as there’s still little clarity on what Trump wants in return for potentially easing tariffs. And with the spectre of another 50% levy on Chinese goods, uncertainty isn’t going away. In fact, China has vowed to ‘fight to the end’ as trade war risks grow. Against this backdrop, the EUR/USD forecast remains far from bullish in the near term outlook despite the risk rally today.

Following a wild week when Trump imposed tougher trade tariffs than expected, volatility took no time in making itself known at the start of this week, with global markets remaining jittery on Monday. But since the second half of Monday’s session, things have calmed down a little. But could this be the calm before the storm?

China digs in as hopes for near-term deal fade

While there is hope for trade negotiations between the US and major trading partners, the world’s second largest economy is refusing to be bullied into submissions: China isn’t backing down.

After President Trump threatened another round of tariffs—this time a staggering 50% levy on all Chinese imports—Beijing hit back with strong words and even stronger intent. “If the US insists on its own way, China will fight to the end,” warned the Ministry of Commerce, calling the tariff escalation “a mistake on top of a mistake.”

With the cumulative tariff rate now at 104%, the cost of Chinese goods coming into the US will be essentially doubled. Markets, already rattled, are now facing the prospect of a prolonged trade war.

Despite keeping communication channels open, China’s latest moves signal it’s not bowing to Trump’s pressure campaign anytime soon—casting doubt on the chances of a short-term trade breakthrough. Without a shift from Trump, markets may need to brace for a deeper economic decoupling between the two giants.

Reflecting trade tensions between China and the US, the yuan slid to its weakest since September 2023 after the PBOC let the fixing breach the key 7.20 mark.

Through all the volatility, the euro has held its ground – at least for now. But with Trump showing no signs of backing down and warning that “sometimes you have to take medicine to fix something,” one has to wonder: is the EUR/USD outlook now turning sharply lower? Could we be on the road to $1.07—or perhaps even worse?

EUR/USD Outlook: Tariffs Are Supposed to Hurt the Euro

One would think tariffs are bad news for the euro. And in the grander scheme, they probably are. Long-term damage to the eurozone economy remains a real risk. But markets have, for now, been preoccupied with the greenback’s own troubles.

Both equities and the US dollar tumbled in unison after the reciprocal tariff announcement—an unusual but telling move. Investor confidence in Trump’s economic brinkmanship is clearly fraying. The spectre of stagflation—sticky inflation alongside meagre growth—is now looming large in the US, particularly given the Fed’s constrained position with rates already elevated.

Over in Europe, the situation may be even more precarious. The ECB is already on a dovish path and any fresh monetary support would surely be negative for the single currency. Against this backdrop, the EUR/USD climbing above $1.10 feels like a stretch. So a slide to $1.05 now looks increasingly plausible.

What was once a constructive EUR/USD outlook has shifted. The bias is now firmly to the downside as we approach the dreaded tariff implementation date: Wednesday, 9 April, at 05:01 BST.

Trump’s “Liberation Day” tariffs, unveiled on 2 April, target countries with hefty trade surpluses and barriers to US goods. The initial 10% baseline came into force on 5 April. Now, the focus shifts to the steeper tariffs scheduled for 9 April. Should the White House blink, markets could enjoy a bigger relief rally—but don’t hold your breath.

A 20% tariff from the US on European goods isn’t just a headline-grabber—it’s a body blow. Add to that the eurozone’s underwhelming data, and the near-term EUR/USD outlook becomes murkier still.

Could German stimulus package rescue the Eurozone?

Despite the trade uncertainty, not all hope is lost. The euro’s resilience has been underpinned by renewed fiscal stimulus and reform pledges from European capitals. Germany’s recently introduced €500 billion stimulus package gave the single currency a much-needed boost last month. But whether that’s enough to sustain momentum is another matter entirely.

While EU leaders are preparing retaliatory steps, the truth remains: this is a no-win game.

Key US data this week: CPI (Thursday) and UoM Consumer Sentiment (Friday)

Headline inflation is forecast to cool slightly to 2.6% from 2.8%. Still, with the trade war narrative dominating, this print might not generate its usual fireworks—just as last Friday’s puzzling jobs data barely stirred the pot.

Sentiment is sagging. Trade war uncertainty has left consumers rattled, which bodes poorly for spending and broader economic health. This Friday’s release of the University of Michigan release will be closely watched.

Technical EUR/USD outlook: Key levels to watch

Source: TradingView.com

The 1.0900–1.0950 region on the EUR/USD chart remains critical support—keep a close eye on this zone. A clean break could open the floodgates to 1.0800, and from there, the 200-day average and March lows around 1.0733–1.0740 come into view. Below that? It’s sparse until 1.0630.

On the upside, resistance lies first at the psychologically important 1.1000 mark, followed by 1.1125.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R