04 Feb 2025

• EUR/USD rebounds sharply to near 1.0350 as US President Trump postpones his ordersof tariffs on Canada and Mexico for 30 days.
• Trump’s intentions to impose tariffs on China remain intact.
• The ECB is expected to cut interest rates three times more this year.
• US President Trump has decided to suspend the imposition of tariffs on his North American partners following their agreement to collaborate in curbing the flow of fentanyl. Conversely, the president's proposal to implement a 10% tariff on China remains under consideration, with indications that he may seek to escalate this measure. "China hopefully is going to stop sending us fentanyl, and if they're not, the tariffs are going to go substantially higher," Trump remarked.
  
  In response, China has quickly reacted to Trump's proposed tariffs by imposing increased levies of 15% on coal and liquefied natural gas (LNG), as well as 10% on crude oil, agricultural machinery, and certain automobiles.
  
  This development suggests that the trade conflict is unlikely to expand globally and will primarily be confined to the United States and China, which has impacted the demand for safe-haven assets.
  
  On the economic front, the US dollar will be influenced by a range of labor market-related economic indicators this week, including JOLTS Job Openings, ADP Employment Change, Nonfarm Payrolls (NFP) data, and the US ISM Services PMI figures.
  
  The labor market statistics are expected to shape market expectations regarding the Federal Reserve's (Fed) monetary policy for the year. At present, the Fed is adopting a cautious stance on interest rates until it observes "real progress in inflation or at least some weakness in the labor market."

• Daily digest market movers: EUR/USD recovers at US Dollar’s expense

• The recent recovery in the EUR/USD pair can be attributed to a decline in the value of the US Dollar, while the future of the Euro (EUR) remains ambiguous as investors anticipate that the Eurozone may soon encounter significant tariff threats from US President Trump. Over the weekend, Trump announced his intention to impose tariffs on the Eurozone, citing the region's insufficient purchases of American automobiles and agricultural products. He remarked that the EU receives "almost nothing" from the US, while the US takes "everything" from them.
  
  In reaction to Trump's tariff warnings, French President Emmanuel Macron stated that the European Union (EU) would respond if its interests were jeopardized. "If our commercial interests are attacked, Europe, as a true power, will have to make itself respected and therefore react," Macron was quoted as saying by The Guardian.
  
  Market analysts contend that trade and investment between the US and the Eurozone represent one of the largest economic relationships globally, and a trade conflict between the two could lead to heightened inflation and economic instability. Increased inflation in the Eurozone would pose challenges for the European Central Bank (ECB), which is currently pursuing an expansionary monetary policy with the expectation that price pressures will sustainably align with its 2% target this year.
  
  The ECB has lowered its Deposit Facility rate by 25 basis points (bps) to 2.75% and has indicated a clear trajectory for monetary policy. Market participants are optimistic that the ECB will implement three additional interest rate cuts by the summer.

• Technical Analysis: EUR/USD rebounds from 1.0210

• EUR/USD recovers from its three-week low of 1.0210 to trade near 1.0350 on Tuesday, but is still trading below the 20-day and 50-day Exponential Moving Averages (EMAs) around 1.0379 and 1.0439, respectively, suggesting a bearish trend.

  The 14-day Relative Strength Index (RSI) holds above 40.00. A bearish momentum could trigger if the RSI breaks below that level.

  Looking down, the January 13 low of 1.0177 and the round-level support of 1.0100 will act as major support zones for the pair. Conversely, the psychological resistance of 1.0500 will be the key barrier for the Euro bulls.