EUR/USD Weekly Outlook, June 2, 2025 – Tariff Turmoil, Euro Optimism, and a Stalled Breakout

• Confusion reigns in the U.S. over tariffs: first struck down by a court, then reinstated on appeal—Trump responds by doubling tariffs on steel and aluminum. He also pressures Powell to cut rates.
• In Europe, inflation expectations rise, but the ECB insists the disinflation process is underway. President Lagarde hints at the euro’s potential as a safe-haven currency.
• EUR/USD touches resistance at 1.14 before retreating amid tariff uncertainty. The currency pair remains locked in a trading range.

Tariff Turmoil and Powell Standoff

The U.S. trade policy saga took another dramatic turn this week. Tariffs imposed under former President Trump were first ruled illegal—then swiftly reinstated. The sequence began when the U.S. Court of International Trade ruled that the statute Trump invoked, the International Emergency Economic Powers Act of 1977, did not grant him the authority to levy tariffs in this context. It was the first time the law had been used to justify such a move, and the court found the economic conditions insufficient to warrant it.

But the ruling didn’t stand for long. Just hours later, the appellate court suspended the decision, putting the tariffs back in force. Trump responded by doubling down—literally—announcing a hike in tariffs on steel and aluminum and accusing China of failing to honor prior agreements.

The White House’s reaction was immediate and furious, as expected. Amid the chaos, the Federal Reserve signaled it would refrain from any policy changes until clear signs of economic slowdown emerged. A high-profile meeting between Trump and Fed Chair Jerome Powell produced little of substance, aside from Trump’s repeated call for lower interest rates—a call Powell appeared to ignore.

Despite the noise, U.S. stock markets edged near record highs once again, the dollar regained some footing, and bond markets remained fragile. Thirty-year Treasury yields hovered around 5%, still elevated in the wake of Moody’s downgrade of U.S. sovereign debt.

Lagarde’s “Global Euro Moment”

Across the Atlantic, inflation data released this week showed diverging trends. France saw consumer prices rise by just 0.6% in April—the lowest reading since December 2020—while Dutch inflation jumped to over 4%.

More concerning, however, were short-term inflation expectations within the euro area, which climbed above 3% over a 12-month horizon. Five-year expectations remained more subdued, anchoring around 2.1%.

The real surprise came from European Central Bank President Christine Lagarde, who struck a bullish tone on the euro. Referring to the present period as a “global euro moment,” she emphasized the currency’s potential to become a more prominent reserve asset. Currently, the euro makes up less than 20% of global reserves—well behind the U.S. dollar’s 57% share. But in times of geopolitical and monetary uncertainty, Lagarde argued, the euro could become a preferred safe haven for international investors.

Technical Analysis: EUR/USD Stalls at Resistance

The EUR/USD once again tested the upper boundary of its recent trading range, nearing 1.14. But the renewed tariff tensions put a quick end to the rally. For dollar bulls, the brief excursion toward 1.15 served as an opportunity to reload long positions and fend off a breakout that might have marked the beginning of a deeper dollar decline.

Technically, the setup for a breakout just wasn’t there. With no solid catalyst in sight, the currency pair remains trapped in its familiar 1.10 to 1.15 band.

Weekly overbought conditions set the stage for a likely pullback—and that’s exactly what’s unfolding. As seen on the chart, every time EUR/USD reached weekly overbought territory in the past five years, a primary top soon followed.

This time looks no different. A retracement toward the 1.10 level now appears likely before any renewed euro buying can gather momentum.

On the weekly timeframe, technicals are taking center stage. The overbought signal has once again proven its predictive power, reinforcing the notion that the euro may need to consolidate before attempting another move higher.