Forex Analysis & Reviews: 18.04.2025 - EU increases pressure on US

18.04.2025 02:04 PM

EU increases pressure on US

The entire world is now watching the ongoing negotiations between the US and its key trading partners. Despite President Trump's loud claims that the talks are going well, there is still no clarity, which fuels pessimism among investors and traders and puts pressure on the dollar.

Meanwhile, the European Union is working on a proposal to impose restrictions on certain types of exports to the US as a possible retaliatory measure in response to the large-scale trade war initiated by President Donald Trump last month.

These restrictions would serve as a deterrent and would only be enacted if talks with the US fail to produce a satisfactory outcome. Recall that the Trump administration imposed new tariffs on April 2 on EU goods worth approximately €380 billion.

Such retaliatory steps from the EU would mark a further escalation of the widening trade conflict and could provoke a forceful response from Washington. Last month, Trump threatened to impose a 50% tariff on Canadian metals after Ontario announced plans to add a surcharge on electricity sent to the US.

With relations already strained due to disagreements over trade policy, energy security, and defense spending, the prospect of new tariffs and restrictions has raised serious concerns among politicians and business leaders on both sides of the Atlantic.

The economic consequences of a full-scale trade war between the EU and the US would be significant. Disruptions in global supply chains, higher consumer prices, and a slowdown in economic growth are just a few of the potential negative outcomes. Moreover, such a trade conflict could undermine the rules-based international trading system, setting a dangerous precedent for other countries. European Central Bank President Christine Lagarde spoke to this point during a press conference yesterday.

According to reports, export restrictions are one of several options being considered by the EU. Other possibilities include additional tariffs and restrictions on government procurement for US companies. These measures could be implemented in various ways, from quotas and licensing to outright bans on specific goods. Typically, such restrictions target goods that are critical to a country and difficult to replace.

For instance, earlier this month, China added seven rare earth metals, used in everything from smartphones to medicine, to its export control list. The US has virtually no domestic capacity to mine these metals.

So far, the EU and the US have made little progress in negotiations aimed at resolving the conflict. After meeting with Italian Prime Minister Giorgia Meloni yesterday, Trump stated that he is confident an agreement with the EU will be reached.

Last week, the EU agreed to postpone the introduction of certain counter-tariffs against the US for 90 days. This move followed President Trump's decision to lower his so-called reciprocal tariff on most EU exports from 20% to 10% for the same period.

In the currency market, the lack of progress in talks led to another wave of dollar selling and buying of the euro.

At the moment, buyers of the euro/dollar pair should focus on reclaiming the 1.1405 level. Only then can they aim to test 1.1467. From there, a move to 1.1525 becomes possible, but achieving this without strong support from large players will be difficult. The ultimate upside target stands at the 1.1545 high. In case of a decline, serious buying interest is expected only around the 1.1340 area. If absent, it would be preferable to wait for a drop to 1.1260 or consider long positions from 1.1165.

Buyers of the pound sterling need to break through the nearest resistance at 1.3290. Only then, they may target 1.3330, above which progress will be significantly more difficult. The farthest upside goal is the 1.3380 area. If the pair declines, bears will attempt to retake control at 1.3240. A successful break below this range would deal a serious blow to the bulls' positions and could push GBP/USD down to the 1.3200 low, with a potential move toward 1.3165.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.