EUR/USD price declines below $1.11 as dollar strengthens after U.S.-China trade deal
EUR/USD declines below 1.1100 after U.S.-China trade deal
The euro (EUR) is experiencing significant pressure against the U.S. dollar (USD), dipping below the 1.1100 mark on Monday, following a key breakthrough in U.S.-China trade negotiations. A temporary truce between the two economic giants, involving a 90-day tariff reduction, has eased tensions, supporting optimism in global markets and strengthening the U.S. dollar.
The U.S. cut tariffs on Chinese imports from 145% to 30%, while China reciprocated with a reduction from 125% to 10%. As a result, the U.S. dollar Index (DXY) surged to 101.60, reflecting investor confidence in the trade deal's potential to alleviate inflationary pressures.
The EUR/USD pair reacted swiftly, falling below the 1.1100 threshold as the U.S. dollar gained strength. This move signals a shift in sentiment, with many market participants now expecting the Federal Reserve to take a more cautious stance on rate cuts due to the reduced inflation risk from tariffs. Federal Reserve officials are expected to adjust their outlook as the trade deal alleviates concerns about rising consumer inflation that had been dominating discussions in recent months.
EUR/USD price dynamics (April 2025 - May 2025) Source: TradingView.
ECB’s mixed signals weigh on euro
In contrast, the European Central Bank (ECB) has delivered mixed signals about its monetary policy. While ECB board member Isabel Schnabel emphasized that there is no immediate need for further interest rate cuts due to rising inflation risks, market expectations remain high for additional rate cuts. This dovish stance from the ECB, coupled with optimism surrounding U.S.-China relations, has placed downward pressure on the Euro, which is now struggling to maintain support above the 1.1100 level.
As EUR/USD continues to face strong selling pressure, attention is shifting toward the upcoming U.S. Consumer Price Index (CPI) data, which could provide further insight into inflation trends in the U.S. and influence the Federal Reserve's next move. The economic outlook for the Eurozone will also be a focal point, especially as ECB officials continue to signal potential rate cuts to bolster the economy.
EUR/USD technical outlook: Bearish trend confirmed
Technically, the breakdown of the 1.1200–1.1440 range confirms the bearish trend for the Euro. The EUR/USD pair has dipped below the 200-period Exponential Moving Average (EMA) at 1.1200, reinforcing the downside bias. The 14-day Relative Strength Index (RSI) has also dropped below 40, signaling increasing bearish momentum. Resistance for EUR/USD now stands at the April 28 high of 1.1425, while the March 27 low of 1.0733 remains a critical support level for Euro bulls.
Looking ahead, traders will continue to monitor key economic data, especially the upcoming U.S. CPI release, which could influence both the Federal Reserve's policy stance and the U.S. dollar's strength. As the U.S.-China trade talks unfold, any further developments could drive further volatility in EUR/USD. If the tariff rollback leads to more positive sentiment, the U.S. dollar could continue to hold strong, potentially pushing EUR/USD toward its next support levels.
