How EUR/USD Has Reacted to Tariff Announcements and Why I’m Neutral for Now
The foreign exchange market is an intricate web of reactions, expectations, and recalibrations, especially when it comes to major currency pairs like EUR/USD. Over the past few tariff announcements, we’ve observed a pattern: the U.S. dollar spikes initially, only to fade as the market reassesses the true implications of these trade policies.
The Market’s Reaction to Tariffs
Each time a new tariff is announced, there’s an immediate rush to safe-haven assets, strengthening the USD. However, this strength is often short-lived. The market seems to have realized that these tariffs are primarily being used as a negotiation tactic rather than a long-term punitive measure. As a result, traders and investors are no longer reacting with sustained USD buying but rather taking profits after the initial spike.
Additionally, much of the tariff-related uncertainty has already been priced in. Market participants are forward-looking, and with repeated tariff rhetoric, the element of surprise has diminished. This explains why, despite sharp USD rallies post-announcement, the currency tends to revert and EUR/USD remains well-supported.
My Current Outlook: Neutral Stance on EUR/USD
Given these dynamics, I maintain a neutral outlook on EUR/USD for now. While tariffs create short-term volatility, they are not fundamentally altering the macroeconomic landscape in a way that justifies a sustained dollar rally. With the Federal Reserve’s cautious stance and European Central Bank’s measured approach, the currency pair is likely to remain range-bound in the near term.
My Trade Plan: Looking for a Short at 1.05
While I am neutral at current levels, I am eyeing a potential short position if EUR/USD reaches around 1.05. This level presents a strong resistance area, and given the market’s pattern of fading tariff-induced moves, it could offer an optimal entry point for a short trade.
Additional Trade Focus: Long AUD/CHF
I have been focusing on going long on AUD/CHF. CHF is my funding currency for my carry trades. AUD looks solid. Hence, I am going long on AUD/CHF whenever opportunities arise.
Conclusion
The market’s response to tariff announcements suggests that much of the uncertainty has already been absorbed. The initial USD spikes are increasingly being faded, reinforcing the view that tariffs are being leveraged as a bargaining tool rather than a prolonged economic burden. With this in mind, I prefer to wait and watch, adopting a neutral stance for now but positioning myself to short EUR/USD should the price action align with my target level.
Stay tuned for further updates as the market unfolds.
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