The euro significantly strengthened against the U.S. dollar after reports emerged that the European Union is open to signing a trade pact with the United States, which would introduce a unified 10% tariff on a wide range of export products from the EU.
However, the EU is pushing for the U.S. to commit to reducing tariffs in critical sectors, including pharmaceuticals, alcoholic beverages, semiconductors, and civil aviation. The EU is also urging the U.S. to introduce quotas and exemptions to effectively reduce Washington's 25% tariff on cars and auto parts, as well as the 50% tariff on steel and aluminum.
The European Commission, which handles trade matters for the EU, acknowledges that the deal slightly favors the U.S. but may still agree to it. It is worth noting that the EU has until July 9 to finalize a trade agreement with Donald Trump before tariffs on nearly all EU exports to the U.S. increase to 50%. The U.S. President has imposed tariffs on almost all trading partners, stating that he wants to restore domestic manufacturing and prevent other countries from taking advantage of the U.S.
In 2024, the EU exported €52.8 billion worth of cars and auto parts to the U.S., its largest export market. Additionally, the bloc exported €24 billion worth of steel and aluminum.
Both the EU and the U.S. are increasingly confident that a temporary agreement can be reached by July 9, allowing negotiations to continue beyond the deadline. Any deal covering tariff and non-tariff barriers, as well as U.S. purchases of key goods, will outline further areas of cooperation and help identify common ground. A preliminary trade agreement with the EU, similar to the one the U.S. recently signed with the UK, would reduce pressure on investors, increasing the appeal of risk assets, including the euro.
The prospect of such an agreement, even if temporary, sends a signal of both sides' willingness to compromise and work together in the long term. This, in turn, would boost confidence in the European economy and ease concerns about its resilience amid global uncertainty. Freed from excessive pressure, investors may begin to invest more actively in European assets, including stocks, bonds, and, of course, the euro. The impact on the euro's exchange rate would be especially noticeable. Increased capital inflows into the eurozone would boost demand for the euro, leading to its strengthening against other currencies, particularly the U.S. dollar. A stronger euro would make European goods and services more expensive for foreign buyers, but it would also reduce import costs, which could have a positive effect on inflation in the eurozone.
European Trade Commissioner Maros Sefcovic will lead the delegation to Washington this week in an attempt to move the negotiations forward. The EU still considers an agreement to be the best-case scenario, but officials were unable to clarify how long any such temporary arrangement might remain in effect while talks continue. The Commission also wants to ensure that existing sectoral tariffs in the U.S.—such as those on cars and metals—as well as any future tariffs planned by Washington, will be reviewed.
The EU aims to eliminate non-tariff barriers primarily through its simplification program and has proposed exploring strategic purchases in areas such as liquefied natural gas, which the U.S. highly desires, and artificial intelligence technologies. The bloc is also open to working with the U.S. on shared concerns regarding economic security.
According to EU estimates, U.S. tariffs currently cover €380 billion, or about 70% of EU exports to the U.S.
On Monday, the Commission informed member states that the bloc had received a U.S. proposal covering tariffs, non-tariff trade barriers, and areas of strategic cooperation. Specific details of the U.S. proposal, such as potential tariff rates, were not disclosed to the member states.
The bloc has also prepared an additional list of €95 billion worth of U.S. goods for potential tariffs in response to the so-called retaliatory and auto tariffs introduced by Trump. The list targets industrial goods, including Boeing aircraft, U.S.-made cars, and bourbon.
Current EUR/USD Technical Picture
Right now, buyers need to focus on reclaiming the 1.1800 level. Only then will it be possible to aim for a test of 1.1840. From there, a move toward 1.1875 becomes possible, although achieving this without support from major players will be quite difficult. The furthest target is the 1.1905 high. If the instrument declines toward 1.1750, I expect major buyers to act. If there is no reaction at that level, it would be reasonable to wait for a new low at 1.1686 or open long positions from 1.1640.
Current GBP/USD Technical Picture
Buyers of the pound need to break through the nearest resistance at 1.3766. Only then will it be possible to aim for 1.3810, a level that will be difficult to break through. The furthest target is the 1.3850 area. In the event of a decline, bears will try to regain control at 1.3720. If successful, a break of this range would deal a serious blow to the bulls' positions and push GBP/USD toward the 1.3678 low, with the potential to extend the drop to 1.3640.
