FOREX Fundamental analysis for EUR/USD on February 3, 2025
It would be a mistake to underestimate Donald Trump. The markets believed that Washington would limit itself to the gradual introduction of tariffs or provide a transition period, but the reality turned out to be tougher. On February 1, tariffs of 25% on imports from Canada and Mexico, as well as 10% on Chinese goods, began to take effect. As a result, EUR/USD showed its worst weekly performance since November.
According to Eurizon SLJ Capital experts, an escalation of trade conflicts is inevitable, as other countries will be forced to respond to the actions of the United States. This creates favorable conditions for a stronger dollar and higher yields on U.S. Treasury bonds.
Canada promptly retaliated by imposing duties on imports of CA$155 billion (equivalent to $107 billion). Mexico and China are preparing for similar steps, and the European Union warns of decisive action in the event of threats from the White House.
The global trade war has entered an active phase. The winner will be the one who can withstand the maximum damage and inflict it on his competitors. Trump is seeking to strengthen the US position by weakening other economies. Mutually beneficial cooperation is not part of his strategy – his goal is absolute dominance.
The scale of the current conflict far exceeds the tariff wars of Trump's first term. At that time, the duties applied to two-thirds of Chinese imports worth $370 billion. Today, they apply to all shipments from China ($410 billion), as well as imports from Mexico ($466.6 billion) and Canada ($377.2 billion). The total amount of goods subject to tariffs looks impressive.
The escalation of trade barriers carries the risks of increased inflation in the United States, which is already showing steady growth. In December, the core index of personal consumption expenditures increased by 2.8%, with strengthening for the third month in a row. According to calculations by the Petterson Institute, a trade war could add 0.54 percentage points to inflation, which would lead to a further increase in treasury yields and a stronger dollar.
In Europe, the situation is developing in the opposite direction. In Germany, consumer inflation unexpectedly slowed in January from 2.6% to 2.3%, which caused a decrease in German bond yields and pressure on EUR/USD. The futures market predicts three ECB rate cuts by the end of 2025, and the probability of a fourth is estimated at 20%. The process could accelerate if the US imposes tariffs against the EU.
Trump's aggressive protectionist policy increases the likelihood of a collapse of EUR/USD to the parity level. This creates favorable conditions for short positions formed from the levels of 1.047 and 1.0415, with the possibility of increasing them with upward corrections.
EUR/USD technical analysis
Last Friday, the short-term upward trend of EUR/USD changed to a downward trend. The pair broke through the support area 1.0395 - 1.0381. On Monday, February 3, the market opened with a price gap. The quotes immediately reached the target zone of 1.0257 - 1.0229. At the moment, sellers are trying to break through this support and gain a foothold below.
If the asset gains a foothold below the target zone, the trend is likely to continue to the golden zone of 1.0165 - 1.0156. During the correction from strong resistance levels, we will look for an entrance to new sales. To form short positions, we consider the resistance areas 1.0311 - 1.0302 and 1.0362 - 1.0348.