EUR/USD Weekly Outlook: Geopolitical Risks and Tariff Pressures

EUR/USD Market Context

The EUR/USD pair has remained constrained within the 1.17 range for four consecutive weeks. Despite periodic volatility spikes, the pair consistently reverts to this baseline, establishing it as a critical pivot point for traders heading into the new week.

Trade Policy and Eurozone Impact

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Market sentiment is increasingly influenced by potential US tariff increases on European automotive imports. President Trump has signaled plans to impose 25% tariffs, citing grievances regarding existing trade agreements and the ratification process in the EU. This development poses a significant risk to European exports, particularly for the German automotive sector, which faces potential long-term losses estimated at €30 billion.

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Macroeconomic Risks of Escalation

Analysts suggest that a trade confrontation could lead to an economic recession in Germany, undermining the broader Eurozone economy. While the US consumer may also face increased costs, the immediate market reaction to trade protectionism typically favors the US dollar as a safe-haven asset.

Geopolitical Instability

The US-Iran diplomatic situation remains a primary driver of market risk-aversion. Recent peace proposals from Iran, conveyed via Pakistani intermediaries, have not yet yielded a compromise with Washington. Persistent ambiguity regarding these negotiations, coupled with potential military escalation risks, continues to elevate demand for the dollar.

Technical Outlook and Trading Levels

Geopolitical factors are expected to dominate over macroeconomic data in the coming days. If trade or diplomatic tensions escalate, a breakdown of the 1.1710 support level on the four-hour chart is likely. A breach of this level would expose the next support target at 1.1660, coinciding with the lower Bollinger Band.

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