Threat of 30% Tariffs on EU Weighs on EURUSD

Officials in Brussels are scrambling following threats of higher tariffs in the final days of negotiating a trade deal as the White House looks to exert "maximum pressure."

The Final Push in Negotiations

Last week, US President Donald Trump sent out letters to some of the US’s trading partners. He announced new tariff regimes remarkably similar to the levels imposed on "liberation day" in April. Initial reports signalled that the EU would not receive one, given the advanced progress in trade negotiations. However, over the weekend, against the bloc, pending a deal before 1 August. The announcement sent European leaders scrambling to come up with a response, with different views between the member countries.

Ahead of a conclave of EU trade representatives to decide the next course of action, Trade Commissioner Maros Sefcovic said that . French President Emmanuel Macron said that the EU should be ready for a trade war, while Italian Prime Minister Giorgia Meloni issued a statement saying she trusted a fair agreement would be reached. The reactions show the extent of divisions between EU nations on how to deal with the trade situation, making it harder to predict the outcome. US Treasury Secretary Scott Bessent said last week that the letters were part of a "maximum pressure" strategy in the final stretch of negotiations. Following his remarks, the EU agreed to suspend some retaliatory tariffs expected to take effect on Tuesday. .

European Indices Decline along with EURUSD

Stock markets witnessed losses at the open, with . The UK’s FTSE escaped the red, as the UK has already signed a trade deal with the US. The automotive sector led losses in Europe, as the threat of tariffs would be on top of the levies on car imports, affecting Germany in particular. German Chancellor Friedrich Merz has been pushing for a quick resolution to the negotiations. The semiconductor sector was also on the backfoot after Broadcom decided not to go ahead with a factory in Spain. However, this may soon change as Dutch lithography firm ASML is in focus ahead of its earnings report on Wednesday, 16 July. Traders look to gauge the effect of the threat of tariffs on the semiconductor industry, which has helped support rising stocks lately.

Meanwhile, the as rising uncertainty around trade negotiations has helped bolster the dollar. However, it still experienced a relatively small drop following Trump's latest tariff threat. This seems to suggest that investors essentially think this is another bluff and that a trade deal will be reached before the deadline. Despite declining initially, the EURUSD found support and reversed into the green.

EURUSD Finds Support at 1.1700

The euro has continued to trade below the median Bollinger Band since the first rejection at 1.1831, pushing the EURUSD into the lower territory just above the 1.1700 handle. The 'autotrend' trendlines also suggest a high activity zone in the 1.1700-1.1737 area, with the median band forming the top of the range. A break in favour of the bulls could find resistance at the latest swing high at the 1.1740 level, the upper Band of 1.1783 and 1.1800. On the flip side, a continuation of the trend could open the door to 1.1650, followed by 1.1615.

Source: SpreadEx | EURUSD

Key Takeaways

Trump has raised the stakes in the EU-US trade negotiations by threatening to raise tariffs by 30%. However, the market appears to believe that this is another pressure tactic, with the euro reacting only slightly negatively before reversing completely. After meeting early on Monday, European leaders also signalled they would press on with negotiations, with Germany reiterating its position to agree on a deal quickly.