US and EU Drift to No-Deal Scenario. Forecast as of 21.07.2025
France and other countries support using the Anti-Coercion Instrument. This measure includes a variety of responses to US tariffs, meaning that a trade war is looming. How will the EURUSD pair react? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US intends to impose a 15% tariff on the European Union.
- The EU may use an anti-coercion tool.
- Markets are assessing the consequences of a trade war.
- The 1.164 level is the line in the sand for the EURUSD pair.
Weekly Euro Fundamental Forecast
An increasing number of EU countries are leaning toward France’s aggressive policy of using instruments against coercion. Meanwhile, Donald Trump’s appetite is growing. The US administration is demanding major sacrifices from the European Union and plans to implement a universal tariff of 15% instead of 10%. As August 1 approaches, the risks of a no-deal outcome, confrontation, and a trade war are mounting, causing the EURUSD rate to fluctuate widely.
At first glance, the EU appears to be in trouble. Its external trade deficit allows the US to dictate terms as it did during the trade war with China in Donald Trump’s first term as president. Subsequently, the yuan collapsed. Given the importance of exports to the eurozone, something similar may happen to the euro.
However, the US dollar was the undisputed safe-haven asset between 2017 and 2020. Now, erosion of confidence in the Fed is forcing investors to look for alternatives. In May, non-residents bought almost €100 billion worth of European bonds, marking the best result since 2023 and the fourth best in history. German debt securities are performing well as a safe haven, so the trade war may not cause the EURUSD exchange rate to plummet.
Net Foreign Inflows Into Euro Area Securities
Source: Bloomberg.
Furthermore, the ECB has already taken measures to bolster the economy, reducing rates seven times in the current cycle. Since the July meeting, markets have been anticipating the continuation of rates and seeking indications regarding future actions. The EU regulator is not inclined to reveal too many details at this time. The value of a word is in its precision, while the value of silence is in its power to convey depth and thoughtfulness. In light of the uncertainty surrounding US tariff policy, the most prudent course of action is to refrain from commenting on the matter.
Notably, other regulators are following suit. They are implementing a strategy to mitigate risk by loosening monetary policy. It is generally accepted that tariffs have a negative impact on the economies of the countries subject to them, while a country that utilizes import duties may encounter elevated inflation rates.
Forecasts for Global Central Banks’ Interest Rates
Source: Bloomberg.
Against this backdrop, the Fed is in no hurry to resume a cycle of monetary expansion. Donald Trump has reiterated that he was not satisfied with the US regulator’s passivity. However, the Treasury Secretary plays a crucial role. Scott Bessent has expressed concerns that the dismissal of Jerome Powell could negatively impact financial markets and encounter legal hurdles. Finally, there is the question of why the central bank should be pressured to lower rates when it is already expected to do so.
Weekly EURUSD Trading Plan
The heightened risk of a trade war between the US and the EU has led to a decline in the EURUSD pair. The pair’s response to the mutual tariff increases remains uncertain. The 1.164 mark is a critical threshold for the euro. A return above this level will generate a buy signal. Conversely, if bulls fail to keep the price above this key level, they will confirm their weakness, and the pair will likely face a sell-off.
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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