Euro-to-Dollar Week Ahead Forecast: Trade Deal Spells Weakness

Above: von der Leyen and Trump reach an accord in Scotland, Sunday. Photographer: Fred Guerdin. European Union, 2025. Source: EC - Audiovisual Service.

The Euro is under pressure against the Dollar following the EU-U.S. trade agreement.

A new trade deal puts the Euro to Dollar exchange rate (EUR/USD) more than half a per cent in the red on Monday, and our Week Ahead Forecast looks for further losses towards 1.16.

The EU and U.S. struck a new trade accord on Sunday, with news of a flat 15% U.S. import tariff on European goods being announced by U.S. President Donald Trump and the EU Commission's Ursula von der Leyen in Scotland.

The deal effectively puts to bed trade war fears; a fear that has kept the Dollar under the thumb in 2025, while benefiting the Euro, which benefited from its status as a major alternative to the Greenback.

5%	... More Currency Achieved on Our Transfers Than a Typical Bank Delivers.

Get Your Quote

With the deal being announced, a significant headwind to the Dollar fades, and so too does a tailwind for the Euro.

The EUR/USD exchange rate falls to 1.1670 at the time of writing, and we think the horizontal support line at 1.16 could come into play.

The daily chart presented below shows previous annotations made in our Week Ahead Forecast series: note the rising trendline in purple. That could well turn into a resistance line, given Monday's drop.

Upside momentum is dented, with the Relative Strength Index (RSI), in the lower panel, falling to 52 while pointing lower.

It's too soon to call a decisive turn in Euro-dollar, but the inability of the current upward pulse to paint a new year-to-date high could spell an end to the cycle of higher highs, suggesting a pause in the rally for the time being.

"Looking ahead, with Section 899 behind us and the trade war likely to be resolved within the next couple of weeks, the U.S. dollar is expected to appreciate again," says Dr. Torsten Sløk, Chief Economist at Apollo, the global asset manager. 

His latest view on the Dollar is that it has depreciated more in the first half of 2025 than yield differentials would have predicted, and this leaves it looking oversold according to some metrics.

"Regression models indicate that this was due to the trade war and economic policy uncertainty, including concerns among foreign investors about Section 899 and the Mar-a-Lago Accord," he says.

Image courtesy of Apollo.

With trade likely to fade as a concern for investors, they are left free to focus on the Federal Reserve decision midweek and the non-farm payroll numbers due Friday.

The Fed is expected to keep interest rates unchanged, judging that inflation is still too high and the economy is robust enough to warrant a degree of patience.

"Inflation remains a key concern. Although recent CPI and PPI data came in below expectations, components of the core PCE deflator, the Fed’s preferred inflation gauge, suggest underlying price pressures persist. As a result, the Fed is expected to maintain its view that inflation is “somewhat elevated” and highlight a possibly more persistent inflation impact of tariffs," says Paolo Zanghieri, Senior Economist at Generali Investments.

Although a hold in July is likely, expectations remain that the Fed might cut rates at some point this year, potentially in September. This means the Fed's guidance on future rates will be of importance, and could well be where the FX reaction lies.

If the odds of such an outcome build, the Dollar might come under pressure, offering GBP/USD the chance to rally into August. Again, it's worth emphasising that we don't see any EUR/USD rallies being significant at this juncture.

The payroll data due on Friday should indicate an ongoing slowdown in employment, which would be consistent with a rate cut at some point later this year.

Above: Non-farm payrolls. Momentum waning, but still positive. Image courtesy of ANZ.

The target is 102K jobs, and anything on either side will impact the market. U.S. labour market data has a habit of beating expectations, so another above-consensus print could boost the Dollar into the weekend.

Turning to the Eurozone's calendar, GDP data out on Wednesday and CPI figures are due on Friday, both of which should corroborate the view that the ECB might have ended its rate cutting cycle.

We think it would take a massive upside surprise in either prints to boost the Euro.

With the ECB entering a pause, and the Fed potentially cutting a few more times in 2025 and 2026, we can see the contours of ongoing support for Euro-Dollar.

This could allow the pair to refind some upward momentum at some point in the coming weeks, but for now, price action is expected to remain heavy.