Euro Catches Tailwinds. Forecast as of 12.06.2025
The stock market is currently reacting to the news of the US trade deal with China, and the reluctance of US inflation to rise is being perceived as a sign of economic weakness and a potential threat to the US dollar’s value. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- US tariffs against China will not rise further.
- The inflation report indicates a cooling economy.
- The Fed is increasingly likely to ease monetary policy.
- Buying the EURUSD pair with targets at 1.16 and 1.2 is a relevant strategy.
Weekly Euro Fundamental Forecast
Donald Trump has announced the conclusion of an agreement with China. According to him, US tariffs on imports from China will total 55%, including previous tariffs, while Chinese tariffs will be 10%. Commerce Secretary Howard Lutnick has stated that the tariffs will not be increased further. Treasury Secretary Scott Bessent indicated that the 90-day delay for countries negotiating in good faith with the US may be extended. The sell-off in the S&P 500 index allowed the EURUSD pair to continue the uptrend that began following the CPI data release.
US Revenue from Tariffs
Source: Wall Street Journal.
In May, the US collected $22 billion from tariffs, marking a 42% increase compared to April. While these statistics differ significantly from those stated by Donald Trump, they still represent unprecedented highs. Meanwhile, shipments from China to the US decreased to $24 billion in April, marking the lowest level since 2010. Notably, the smaller the base, the lower the revenue. It is not feasible to finance Trump’s tax cut bill. This has created a challenging environment for the US dollar.
US Imports Change
Source: Wall Street Journal.
Another issue is the cooling of the economy due to tariffs. In May, inflation in the US did not accelerate as expected. A modest increase in consumer price growth from 2.3% to 2.4% and core inflation anchored at 2.8% disappointed Bloomberg experts. The primary factor cited is the weakening of domestic demand, which is prompting the Fed to consider easing monetary policy. The derivatives market has increased the likelihood of three or more federal fund rate cuts in 2025 from 22% to 28%. The probability of only one act of monetary expansion fell from 39% to 31%.
US Inflation Change
Source: Wall Street Journal.
The US officials’ comments further spurred the EURUSD rally. Donald Trump once again called on the Fed to reduce interest rates by one percentage point. Vice President James David Vance has stated that the central bank’s reluctance to ease monetary policy is ‘monetary malpractice.’
If tariffs remain stable and inflation continues to slow amid a cooling labor market, the Fed will likely have to resume its cycle of monetary expansion. On the other hand, the ECB appears to have completed its cycle. According to chief economist Philip Lane, a significant reduction in deposit rates was necessary to prevent inflation from falling below the 2% target for an extended period.
Weekly EURUSD Trading Plan
The Fed and the ECB are in different positions, and the divergence in their monetary policies is creating tailwinds for the EURUSD pair. The pullback created an opportunity to open long trades at 1.1065, 1.1225, and 1.1445. The targets of 1.16 and 1.2 remain the same as previously announced. The recommendation is to hold and increase long positions on the euro against the US dollar.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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