Concerns About US Recession
The US Dollar Index, now pushing up towards 103.35, had lost ground earlier in the session but has since clawed back strength. This renewed interest is closely tied to robust safe-haven buying, especially as voices from within Washington acknowledge growing pressure from global trade partners. When Bessent admitted to mounting requests for negotiation, he provided a signal—intended or not—that current policies might be softening. Yet, at the same time, Hassett’s comments on further tariff steps indicate that the threat remains anything but idle.
What’s interesting as we assess this, is that the fear shifting through the markets isn’t just about the tariffs themselves—it’s about what these signals mean for forward-looking economic activity. There’s belief growing in some circles that the Federal Reserve is watching this storyline with increasing concern. Already, traders are beginning to lean more heavily on the idea of a potential rate cut in June. If that gets confirmed—or even hinted at—expect movement not just in yields, but a rethink on Dollar positioning altogether.
Economic Data Focus
Attention now moves to Thursday and Friday’s CPI and PPI data, with inflation pressures set to steer sentiment. Anything above expectations will put tapering talk on hold, while softer figures would feed dovish assumptions already priced in. What we’re seeing is that economic data, which had taken something of a backseat in recent days, is suddenly back in focus—and traders should be ready to react sharply across interest rate swaps and currency futures as a result.
On the other side, reaction from China has been predictably firm. The statement from Beijing makes it clear that retaliation is not just possible—it’s expected. For the Eurozone, caught in the crossfire of these tensions, the economic hit could be felt just as worded by officials in Frankfurt. Any US tariffs, even if not directly levied on European goods, could dampen supply chains and demand sufficiently to slow broader output in the bloc. When dovish comments began to flow from ECB members, it wasn’t purely theoretical—it was contingency management.
Finance ministers gathering in Warsaw are now tasked with not only assessing economic effects but likely reassuring markets with coordinated action. Domański’s warning about distorted supply chains should not be brushed aside as only localised concern. Disruptions here are interlinked. Higher input costs will filter through to European consumers by way of prices, which adds a different layer to what inflation targeting now needs to consider.
Šefčovič’s approach—seeking to eliminate tariffs on both sides for cars and industrial parts—could provide temporary relief. But such discussions are long-term in nature and dependent on reciprocal goodwill, which, at this moment, appears in limited supply. Should talks move forward meaningfully though, sentiment around the Euro would improve, especially if market participants sense breathing space from tariff-related risks.
Technically, spot EUR/USD isn’t breaking down. There’s stability as long as price action continues to hold ground near the 10-day EMA at around 1.0888. Traders should pay close attention to the RSI remaining anchored around 60, which points to underlying strength without tipping into overbought territory. If the pair keeps consolidating above the March 31 high at 1.0850, the door remains open for moves towards the 1.1200s. However, breakout timing matters.
Risk-reward over the next few sessions appears oriented around not just inflation figures from the US, but also how the Eurozone ministers choose to quantify—to themselves and to markets—the economic risk of continued trade disruption. While politics dominate headlines, it’s shifts in monetary expectations and policy language that will continue driving the next leg in rates differentials.
