- EUR/USD added to Tuesday’s bounce and surpassed the 1.1700 hurdle.
- The US Dollar succumbed to the renewed selling pressure, hitting two-week lows.
- Markets will now shift their focus to US PPI and weekly Claims.
The Euro (EUR) maintained its bullish momentum in place on Wednesday, with EUR/USD adding to recent gains and advancing to new two-week tops near around 1.1730.
The move rode another marked retracement in the US Dollar (USD) as investors factored in July’s US inflation data. With markets still pricing two potential Federal Reserve (Fed) cuts—most likely in September and December—the US Dollar Index (DXY) slid to fresh two-week lows in the sub-98.00 region.
Trade détente helps the mood
Washington and Beijing extended their trade truce for another 90 days on Monday, narrowly averting tariff hikes that were hours away. President Trump signed an executive order pushing the pause through to November 10, and China said it would reciprocate. Under the extension, US tariffs on Chinese goods remain at 30%, while China keeps a 10% levy on American products.
The headlines add to the freshly signed US–EU accord, which trims most European export tariffs to 15% from a threatened 30%. Aerospace, semiconductors, and agricultural goods dodged new duties, but steel and aluminium remain taxed at 50%. In return, Europe pledged to buy $750 billion in US energy, expand defence orders, and channel more than $600 billion in US investments.
Scepticism followed quickly: German Chancellor Friedrich Merz warned the deal would hit a fragile manufacturing base, while French President Emmanuel Macron called it a “dark day” for the Continent.
Central banks keep a cautious line
The Fed left policy unchanged at its latest meeting, with Chair Jerome Powell striking a guarded tone despite dissent from Governors Waller and Bowman.
In Frankfurt, European Central Bank (ECB) President Christine Lagarde described growth as “solid, if a little better”, even as money markets pushed expectations for a first rate cut out to spring 2026.
Positioning trims on both sides
Commodity Futures Trading Commission (CFTC) data to August 5 showed speculators cutting net long EUR positions to a five-week low near 116K contracts, while commercial players pared net shorts to about 163.5K contracts—also multi-week lows. Additional data saw open interest slip to a four-week trough around 828.3K.
Levels to watch
Resistance stands at the weekly high of 1.1788 (July 24), then the 2025 ceiling at 1.1830 (July 1). Above that, there is the September 2021 peak at 1.1909 (September 3), just shy of the psychological 1.2000 mark.
On the downside, support begins at the August low of 1.1391 (August 1), underpinned by the interim 100-day Simple Moving Average (SMA), ahead of the weekly floor at 1.1210 (May 29).
Momentum is mixed: the Relative Strength Index (RSI) above 56 indicates some near-term upside risk, but the Average Directional Index (ADX) around 15 still signals a trend that lacks conviction.
EUR/USD daily chart
Short-term outlook
Consolidation looks like the path of least resistance unless the Fed springs a surprise or trade tensions ease materially. For now, US Dollar dynamics should remain the main driver of EUR/USD direction, almost exclusively.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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