EUR/USD drops to three-year low as U.S. trade tariffs fuel dollar rally
EUR/USD nears three-year low amid rising U.S. dollar and trade tensions.
The EUR/USD pair is teetering on a multi-month downtrend, with spot prices dipping perilously close to a fresh three-year low and facing further potential declines.
This week's movements are largely influenced by a sharp rise in the U.S. dollar following President Donald Trump's weekend announcement of imposing significant tariffs on imports from Canada, Mexico, and China, igniting fears of a new global trade war.
On Monday, February 3rd, EUR/USD traded at 1.0242 during the European session, after barely clawing back from a weekend gap that plunged down to 1.0232, marking a three-week low. The currency pair has been oscillating between 1.0209 and 1.0268 since the Asian session, indicating a tight trading range but with a clear bias towards further declines.
EUR/USD price dynamics (November 2024-January 2025). Source: TradingView.
The previous week saw the EUR/USD decline by 1.77% from a high of 1.0533 to close at 1.0351, effectively wiping out all gains from January. This sharp drop was a direct response to the escalating trade tensions, which have caused investors to pivot towards the safety of the US Dollar, reducing demand for riskier assets like the Euro.
Technical outlook: RSI signals oversold, but euro’s downtrend remains intact
Technical analysis also provides a grim outlook for the Euro. The 4-hour Relative Strength Index (RSI) now shows oversold conditions, suggesting that while there might be some short-term upside, the broader trend remains bearish. The EUR/USD's vulnerability is further exacerbated by the lack of positive catalysts from the eurozone, contrasting with the US's relatively stronger economic indicators and geopolitical stance.
Looking forward, the EUR/USD's path seems fraught with challenges. Given the U.S. dollar gaining strength due to the trade war developments, the euro might struggle to recover unless there's a significant shift in global risk sentiment or unexpected positive economic data from the eurozone. Without any signs of trade war de-escalation or changes in monetary policy from the European Central Bank, the pressure on the euro is likely to continue, potentially pushing the pair even lower in the coming weeks.
The European Central Bank's recent interest rate cut to 2.75% led to a decline in the EUR/USD. This monetary policy adjustment was influenced by Germany's January inflation rate.
