EUR Struggles Amid Renewed Trade Uncertainty
The euro has shed much of its recent strength against the U.S. dollar, with EUR/USD slipping sharply below the 1.1600 handle, marking a new multi-week low on Thursday.
Trade Frictions Undermine Euro Stability
Despite the U.S. administration postponing new tariff announcements until August 1, unease around deepening trade disputes continues to dampen investor sentiment toward the euro.
Washington’s threats to impose 30% tariffs on EU exports, combined with confirmed 25% duties on imports from Japan and South Korea and a 50% levy on copper, have triggered concerns about a potential trade escalation. This wave of uncertainty has steered market flows back into the U.S. dollar, viewed as a safe-haven in turbulent times.
In response to rising tensions, EU trade commissioner Maroš Šefčovič made a diplomatic visit to Washington, engaging in talks with U.S. Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer, in hopes of easing hostilities.
Diverging Central Bank Paths Add to Market Volatility
The release of the Federal Reserve’s June meeting minutes revealed a divided committee, with some policymakers favoring immediate rate cuts, while others preferred to monitor inflation dynamics more closely before adjusting policy.
Although U.S. inflation — reflected in a stronger-than-expected June CPI reading — has reinforced Fed Chair Jerome Powell’s cautious tone, market participants still expect some form of monetary loosening later in the year, assuming inflation softens.
Meanwhile, the European Central Bank has adopted a more restrained posture, keeping interest rates steady. Its Deposit Facility Rate remains at 2.00%, following a cut earlier in June. Future ECB actions will likely hinge on signals of weakening global demand.
Positioning Signals a Clash of Sentiment
As of July 8, speculative traders have significantly increased their bullish exposure to the euro, with net long positions exceeding 120.5K contracts — the highest since December 2023. However, this optimism contrasts with a rise in commercial short positions, which jumped to nearly 177K contracts, reaching levels not seen in months.
Total open interest in euro futures has also been climbing steadily for three weeks, now standing at approximately 806K contracts, highlighting growing market participation and a potential tug-of-war between bullish and bearish camps.
