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EUR/USD eases as the EU announces retaliatory tariffs

• The EU will apply retaliatory tariffs from April 1
• US CPI data is expected to ease to 2.9%
• EUR/USD eases back from 1.0940

EUR/USD pauses for breath after a phenomenal run higher to a 5-month peak. Investors are weighing up a range of factors including tit for tat trade tariffs, a possible ceasefire in Ukraine, US recession worries and inflation data later today.

The Euro is falling as trade tensions escalate. The EU has announced €26 billion worth of retaliatory measures following President Trump's tariffs on steel and aluminium imports, which took effect today. EU countermeasures will take effect on April 1st and could temporarily knock the EUR off course.

At the same time, the common currency is also finding support from reports of Ukraine's readiness to accept a month-long ceasefire. The proposal agreed by Ukraine and the US will now be presented to Russia. A ceasefire could improve sentiment.

Meanwhile, the USD is rising but remains close to its multi-month lows amid recession fears due to the possible impact of Trump’s trade tariffs.

Trump announced a 50% tariff on Canada’s steel and aluminium in response to retaliatory tariffs from Ontario. Trump then reduced these two 2back to 25% when Canada backed down. The unpredictability of Trump’s policies adds to the market volatility.

US CPI data is due later and could influence the pair. US CPI is expected to cool to 2.9%. The data comes as the market ramps up expectations of a May rate cut.
 

EUR/USD forecast – technical analysis

EUR/USD rally from 1.0375 ran into resistance at 1.0940, the November high and has eased slightly. A period of consolidation or a move lower could be on the cards, to bring the RSI out of overbought territory.

Support can be seen at the 1.08 round number, and a break below here exposes the 200 SMA at 1.0730. A break below 1.06 support would negate the run higher.

Buyers will need to rise above 1.0940 and 1.10 to extend the bull run toward 1.12, the 2024 high.

(Click on image to enlarge)

USD/JPY rises ahead of US CPI data

• US CPI to ease to 2.9% from 3%
• Japan wage negotiations could support another rate hike
• USD/JPY recovers from 146.50, but downtrend remains intact

USD/JPY is rising for a second straight session, recovering some of last week’s steep losses. The tick higher in the pair comes as the USD steadies ahead of CPI data.

The USD is hovering around a five five-month low versus its major peers after being weighed down by recession fears amid Trump's flip-flopping trade tariff announcements.

US CPI is expected to fall to 2.9% from 3%, while underlying inflation is expected to remain at 3.2%. The market will watch the data closely for signs that inflation is cooling after the Fed paused rate cuts at the start of this year until there is more evidence of inflation returning to target levels.

Signs of sticky inflation could unnerve the market, given expectations that trade tariffs will be inflationary and that US growth could slow considerably. Sticky inflation and slowing growth put the Federal Reserve in a difficult position, as it may struggle to cut rates to support the economy.

Heading into the announcement that the Fed is expected to cut interest rates three times in 2025, with a 50% possibility of the first cut coming in May. Given that the market is still confident that the Fed will leave interest rates unchanged at the meeting next week, volatility around this week's data may be capped.

Meanwhile, the yen is falling despite many of Japan's largest companies meeting union demands for substantial wage hikes for a third straight year. Japan’s Shunto negotiations concluded today, and economists expect the average pay increase for 2025 to be similar to last year's 5.1%, which marked the sharpest increase in 33 years.

The Bank of Japan has said that robust pay hikes would increase the chances of a further rate hike from the central bank, although it's unclear whether these wage increases will be sufficient for the central bank to move aggressively. Should the average pay hike be close to 6%, then it could add significant inflationary pressures, and a rate hike could come sooner than expected, boosting the yen.
 

USD/JPY forecast – technical analysis

After running into resistance at almost 159, USD/JPY has been trending lower in a falling channel. The price rebounded higher from the 146.50-147.00 support, the lower band of the falling channel, and the 61.8% Fib retracement and could test resistance of 148.80, the December low and the mid-point of the falling channel. However, the downtrend remains intact.

Should the price recover above 148,.80 and 149.30, the 50% Fib retracement, buyers may look to extend the recovery towards 150. To 151.55. It would take a rise above here to create a higher high and change the chart's structure.

Meanwhile, sellers need to take out support at 146.50 to create a lower low and extend the bear trend.

(Click on image to enlarge)

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