Trump Trade War: US-EU Deal Triggers EUR/USD Correction and Stock Market Surge

The latest chapter in the Trump trade war has produced a breakthrough. The United States and the European Union have reached a high-stakes trade agreement that imposes a 15% US import tariff on most EU goods—half the previously threatened rate. In return, the EU has committed to investing $600 billion in the US economy and significantly increasing its purchases of American energy and defence equipment. The agreement averts a full-blown trade war and marks one of the largest transatlantic trade deals in recent history.

US-EU and Japan Trade Deals Shift Market Sentiment

This breakthrough signals improved geopolitical stability and strengthens the US economic outlook. With $750 billion in future EU energy purchases and hundreds of billions in military imports, the agreement supports US industrial output and job creation. As a result, market sentiment has shifted in favour of the US dollar, which has found support from the potential surge in exports and capital inflows, despite the initial EUR uptick following the deal’s announcement.

The euro briefly gained after the deal’s release, driven by relief over avoiding steeper tariffs. However, the structural imbalance in tariff concessions and heavy EU investment into US markets may weigh on the euro over time. If US economic indicators continue to outperform, this deal could strengthen the dollar further and put downside pressure on EUR/USD.

Moreover, the US-Japan trade deal has contributed to market optimism and further alleviated concerns about tariffs. Japan secured a flat 15% tariff on auto exports, which is much lower than the expected 25% sector-specific rate. Since automobiles account for nearly 30% of Japan’s exports to the US, this agreement signals flexibility in Trump’s tariff strategy.

Stock Market Rally on Trade Optimism and Easy Conditions

This deal has boosted positive sentiment across financial markets. The S&P 500 reached a new all-time high, confirming strong bullish momentum. The chart below suggests that the index may continue rising toward the resistance of the ascending broadening wedge pattern. The emergence of an inverted head and shoulders pattern before the broadening wedge indicates sustained bullish momentum in the S&P 500.

Meanwhile, the Dow Jones 30 is looking for a decisive breakout at the 45,000 level. A break from this level will initiate a surge in the index.

On the other hand, the 10-year Treasury yields remain below the 4.5% resistance mark, signalling ongoing consolidation.

The Chicago Fed National Financial Conditions Index dropped to -0.553, indicating loose financial conditions. This environment favours risk-on sentiment and reflects low systemic stress.

The US dollar remains under bearish pressure but has rebounded from its long-term support level near 96. This recovery suggests temporary strength; however, the broader trend still leans to the downside unless the key resistance level of 100.50 is broken.

The US dollar remains sensitive to upcoming economic data and shifts in risk sentiment. The release of the US GDP, Core PCE Price Index, and the Nonfarm Payrolls report will likely influence its next move.

EUR/USD Technical Analysis: Bullish Breakout Faces Short-Term Pullback

EUR/USD Monthly – Breakout Above $1.12 Confirms Long-Term Bullish Trend

The monthly chart below shows that the EUR/USD has broken the key resistance level of 1.12 and initiated a strong surge in 2025. The appearance of an inside bar in May 2025 indicates that the long-term trend remains strongly bullish.

The persistent bearish trend in the US Dollar Index also supports this bullish momentum. Additionally, EUR/USD has broken out of a long-term falling wedge pattern, confirming further upside potential. The US-EU trade deal may initiate a correction in the pair, but the correction is expected to be limited to a maximum of 1.12.

EUR/USD Daily – Correction Within Bullish Trend

The daily chart for EUR/USD shows a strong bullish trend. The price is trading above both the 50-day and 200-day SMAs, indicating upside momentum. However, the recent trade deal has triggered a short-term correction, and EUR/USD is pulling back.

Strong support lies at the 1.1580 level. A break below this could lead to a deeper drop toward the 1.12 level. The 1.12 level now acts as long-term support, as confirmed by the monthly chart breakout. Despite the correction, the long-term target for EUR/USD remains near the 1.22 region.