The EUR/USD pair surrendered its earlier gains Monday, falling from a new monthly high of 1.1425 to around 1.1375 through the European session. The reversal came as the US Dollar gained back losses even with the earlier loses from political uncertainty out of Washington. The rally was triggered by an about face in tariff policy from President Trump.
US Dollar Rebound Follows Trump’s Mixed Tariff Signals
After threatening 50% tariffs on European Union (EU) imports starting June 1, President Trump reversed course over the weekend and suspended the decision until July 9, pending accelerated trade negotiations.
The policy whiplash announced on Truth.Social and later clarified in talks with EU Commission President Ursula von der Leyen caused immediate market volatility. While the Euro initially gained on easing trade tensions, the US Dollar rebound followed as markets processed Trump’s unpredictability with caution.
Strong German GDP Boosts Euro but Can’t Counter USD Bounce
Revised GDP data from Germany supported the Euro early Monday, as the economy grew at a solid 0.4% in Q1, double the preliminary estimate of 0.2%. Analysts at Deutsche Bank noted that the speed of economic output could help the economy avoid stagnation and improve sentiment across the broader EU.
That said, the strength of the Euro was short-lived, as the US Dollar recovered from losses, this dragged EUR/USD back toward 1.1375. While EUR/USD now trades in a narrow range it is waiting for economic data to help establish a further direction.
Both the Eurozone inflation data (HICP) for May, and the US PCE Price Index data for April – both due on Friday – will likely set the stage for subsequent moves in EUR/USD.
ECB Rate Cut Bets Increase, Adding to EUR/USD Uncertainty
In monetary policy news, dovish comments by European Central Bank (ECB) policymakers have put some weight on the Euro. Central Bank governor of Greece Yannis Stournaras reaffirmed the market’s expectations for an interest rate cut in June saying he expects “one more interest rate cut and then a pause.”
This discussion further supports market expectations that the ECB will embrace a more accommodative policy in the upcoming months. This could help Eurozone growth, but could also weigh on the Euro versus an uncertain, but stronger US Dollar.
EUR/USD Holds 20-Day EMA
From a technical perspective, EUR/USD today holds above the crucial 20-day Exponential Moving Average (EMA) at 1.1270. The 14-day Relative Strength Index (RSI) is near 60, suggesting mild bullish momentum.
If RSI breaks above 60 and price stays above 1.1375, bulls may attempt to retest the April 21 high at 1.1475. Conversely, a dip below the September 25 high of 1.1215 would expose the pair to deeper losses.
Conclusion
Despite a strong start to the week, EUR/USD today pulled back as the US Dollar rebounded on Trump’s sudden trade policy shift. While strong German GDP supported the Euro briefly, political unpredictability in Washington remains a key driver for USD volatility. Traders now look to inflation data on both sides of the Atlantic for the next decisive move.
About The Author
