EUR/USD bounced back into the mid-1.16–1.17 range as investors weighed renewed US–EU trade tensions and the potential impact of a Supreme Court ruling on tariff legality. With a NATO rift looming and EU leaders possibly considering one-for-one tariff retaliation, the broader environment remains USD-negative, Danske Bank’s FX analyst Kristoffer Kjær Lomholt reports.
EU may follow China’s playbook on retaliation
“After an initial dip, EUR/USD rebounded back into the mid-1.16-1.17 range as markets digested the reignition of the EU-US trade war. With a potential Supreme Court ruling on tariff legality pending, investors appear reluctant to take large directional positions on the back of the weekend developments.”
“These issues – alongside the emerging risk of a NATO rift – look set to dominate the policy agenda this week. President Trump is scheduled to speak at Davos tomorrow, followed by a meeting of EU leaders on Thursday.”
“A key question is whether European leaders will follow China’s playbook from last year and respond with one-for-one tariff measures to pressure Washington into de-escalation. In our view, the overall backdrop is ultimately USD-negative.”
Source: https://www.fxstreet.com/news/eur-usd-rebounds-amid-eu-us-trade-tensions-danske-bank-202601200911
