empty
05.06.2025 12:38 AM
The Dollar Returns to the Battlefield

When there is no unity among allies, things don't go smoothly. Following mutual accusations between the U.S. and China, Donald Trump commented that Xi Jinping is a very tough man and it is difficult to strike a deal. The trade war between the world's two largest economies is about to return to center stage — the very trade war that sent EUR/USD soaring in late April to its highest level since autumn 2021.

One reason for the escalating tension is a mutual misunderstanding of the terms of the Swiss-brokered agreement. Another is China's resilience to tariffs. Trump sees China as his main adversary and expects tariffs to significantly slow the rival's GDP growth—especially since the blow is being delivered not only by the U.S. but also by persuading other countries to act.

One of Washington's demands in trade negotiations with other countries is to jointly oppose China. For instance, the European Union plans to restrict China's access to its medical equipment procurement market.

U.S. Foreign Trade Dynamics

This image is no longer relevant

Brussels is yielding on some issues but refuses to do so on others. The EU has expressed outrage over Trump's decision to double tariffs on steel and aluminum from 25% to 50%. According to the EU, this will be a serious obstacle to reaching a final agreement.

It seems the U.S. will have to wage a trade war against two powerful adversaries simultaneously — plus its own legal system. It's no wonder investors are fleeing the U.S. swiftly, creating pressure on the dollar.

Meanwhile, Europe shows resilience to tariffs. Final readings showed that the eurozone composite PMI for May stayed above the critical 50 mark. GDP will likely continue expanding, which is good news for EUR/USD.

European Business Activity Dynamics

This image is no longer relevant

There are challenges ahead, notably the political crisis in the Netherlands and the slowdown of European inflation, which has fallen below the 2% target. Consumer price dynamics will be a strong argument for the "doves" at the European Central Bank's June meeting. The deposit rate is expected to fall to 2%. Slower CPI growth could prompt Christine Lagarde to signal the continuation of monetary expansion soon.

This image is no longer relevant

Nevertheless, when monetary and fiscal stimuli are seen as lifebuoys for economies drowning in the ocean of trade wars, monetary policy easing no longer leads to panic in EUR/USD. The more significant event on the economic calendar for the euro-dollar pair appears to be the U.S. nonfarm payrolls report for May.

Technical Outlook

On the daily chart, EUR/USD bulls are trying to push the pair beyond the fair value range of 1.119–1.1395. If they succeed, the chances of a renewed uptrend will increase. Long positions formed from the 1.12–1.122 area could be expanded.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Igor Kovalyov
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

GBP/USD Overview – July 14. Keep Calm and Carry On

The GBP/USD currency pair showed a rather significant decline on Friday. Overall, the British currency has been falling for two weeks now, and this is a very important fact that

Paolo Greco 04:33 2025-07-14 UTC+2

EUR/USD Overview – July 14. The Fed's and Trump's Positions Remain Unchanged

The EUR/USD currency pair continued a mild and weak downward movement on Friday. As we have mentioned many times before, the current move is a pure correction, so there

Paolo Greco 04:33 2025-07-14 UTC+2

The Dollar Is Becoming a Risk Currency

In my reviews, I've regularly noted that the decline in demand for the U.S. dollar is not just a matter of price depreciation. We're talking about a currency that

Chin Zhao 00:42 2025-07-14 UTC+2

The Market Believes Trump Will Back Down

What is happening in the financial markets right now can only be described as a paradox, and many economists are noting it. Take the U.S. stock market, for example: initially

Chin Zhao 00:42 2025-07-14 UTC+2

EUR/USD. Weekly Preview: U.S. Inflation, Retail Sales, ZEW Indices, and China's GDP

The upcoming trading week will be marked by U.S. inflation data. Reports on CPI and PPI growth will be released, along with the University of Michigan Consumer Sentiment Index. However

Irina Manzenko 00:41 2025-07-14 UTC+2

U.S. Dollar. Weekly Preview

In the upcoming week in the U.S., reports on inflation and industrial production will be released, along with a few other moderately interesting indicators. The most important one is undoubtedly

Chin Zhao 00:41 2025-07-14 UTC+2

British Pound. Weekly Preview

Over the past two weeks, the pound has declined more than the euro, yet the wave patterns of both instruments are almost identical. Accordingly, a three-wave corrective structure should also

Chin Zhao 00:41 2025-07-14 UTC+2

USD/JPY. Analysis and Forecast

Earlier, U.S. President Donald Trump imposed 25% tariffs on all Japanese exports to the United States, which will take effect on August 1. This move exacerbates Japan's economic challenges, which

Irina Yanina 14:21 2025-07-11 UTC+2

Market fears nothing

The S&P 500 reached another all-time high, with rotation being the hallmark of the US equity market. Investors are aggressively buying up stocks that underperformed in the first half

Marek Petkovich 10:50 2025-07-11 UTC+2

What to Watch for on July 11th? A Fundamental Overview for Beginners

There are very few macroeconomic publications scheduled for Friday, but the volume is still greater than on any previous day this week. The UK will release GDP and industrial production

Paolo Greco 08:50 2025-07-11 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.