EUR/USD Crumbles to 1.1600 as CPI, Fed Rhetoric, and Tariff Tensions Trigger Break

EUR/USD Weakens Sharply as Inflation Data and Tariff Risks Reshape Dollar Outlook

The EUR/USD currency pair has fallen aggressively below the psychological threshold of 1.1650, now trading near 1.1600, with downward pressure accelerating following a combination of hotter-than-expected U.S. inflation data and escalating trade war threats. The June CPI release shocked markets with a 0.3% MoM gain, pushing annual inflation to 2.7%, up from 2.4% in May. Core inflation came in at 2.9% YoY, narrowly missing the 3.0% forecast but still sticky enough to derail hopes of a near-term pivot by the Federal Reserve.

Trump’s 30% Tariff Threat on EU Imports Fuels Euro Selling

Aggressive policy threats from Donald Trump have only intensified downside risks. A proposed 30% import tax on goods from the European Union, with separate 10% levies on smaller nations, threatens to derail trade negotiations and pressure the euro even further. The European Central Bank is now preparing a €72 billion retaliation package, targeting U.S. sectors such as aviation and alcohol. This mounting tension has completely overrun optimism from a recent EU trade surplus of €16.2 billion and Italy's CPI rise of 1.8%, as the broader narrative remains one of policy fragility and stagflation risk.

Bearish Technical Setup Deepens: EUR/USD Below Trendline, EMA Cluster Broken

From a structural standpoint, EUR/USD has decisively broken below the ascending trendline that had supported the pair since early July. Price action is now stuck beneath the 20-, 50-, and 100-period EMAs on the 4-hour chart, with the 200 EMA resting near 1.1591 as the next downside magnet. Resistance at 1.1630, 1.1658, and 1.1686 has already proven firm, with sellers rejecting each recovery attempt.

A confluence of bearish signals, including the violation of the rising wedge pattern, rejection at the Fibonacci 1.1686 retracement, and repeated failures to hold above 1.1650, confirm that the pair is building toward deeper weakness. A move below 1.1581, followed by 1.1535 and 1.1497, remains increasingly likely. RSI sits near 32.9, confirming the market remains oversold but without divergence to suggest reversal.

Fed Policy, Beige Book, and PPI in Focus as Euro Faces Policy Vacuum

The Federal Reserve’s Beige Book and upcoming PPI report now dominate the euro's short-term outlook. Fed officials like Susan Collins and Lorie Logan have reaffirmed a commitment to keeping rates elevated. Logan warned against cutting too early, while Collins projected inflation may climb to 3% in 2025 due to tariff effects. This leaves traders with only 43 basis points of easing priced in for 2025, down from over 50 bps just days ago. Meanwhile, the ECB remains on hold, offering little narrative support to the euro amid stagflation concerns and a policy void.

Price Reactions Suggest Renewed Dollar Momentum, Euro Vulnerability Builds

The DXY Index bounced above 98.70, brushing against resistance between 98.90–99.08, while EUR/USD continues its path of lower highs and lower lows. Unless price recaptures the 1.1658–1.1686 resistance zone, euro bears retain control. A decisive break of 1.1535 could set up a move toward 1.1440, the May swing support. Short-term traders are watching for a potential bounce off 1.1586, but conviction remains weak unless the pair can close a daily candle above 1.1665 and break the downtrend channel.

Verdict: EUR/USD Bearish Bias Intact, SELL Rally Into Resistance

Until EUR/USD reclaims 1.1686 on sustained momentum, the short-term bias remains bearish. Fed policy firmness, sticky inflation, Trump’s tariff rhetoric, and weak eurozone inflation data offer no bullish catalyst. The trade is to SELL on rallies toward 1.1658–1.1686, with downside targets at 1.1535, 1.1497, and possibly 1.1440 if bearish momentum accelerates post-PPI.

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