Plunges 1.3%! The Euro Faces "Dark Days", EU Economy May Contract by 0.4%

Hexun Finance APP News - Beijing Time, July 29th (Asian time), the euro slipped against the US dollar with a narrow range of fluctuations, currently trading around 1.1598, up about 0.1% on the day. On Monday, the euro fell 1.3% against the US dollar, with the market still digesting the impact of the new US-EU trade framework. The weakening of the euro was driven by the decline in other currencies against the dollar and the strengthening of the dollar against a basket of currencies, reflecting investors' renewed interest in US assets.

The euro's softness is not limited to the dollar. The euro also fell against the pound and yen, confirming the widespread pressure to sell. Meanwhile, the Australian dollar plummeted against the US dollar and the Canadian dollar surged, highlighting the role of widening interest rate differentials in supporting a strong dollar.

Criticism of the EU-US agreement within the eurozone is growing louder. Many people believe that the agreement favors the United States, with the US receiving broad energy procurement and investment commitments from the EU, while imposing a 15% tariff on most goods - significantly higher than during Trump's presidency. The agreement has been seen as more harmful to trade relationships and control rather than breakthrough progress.

A report by Deutsche Bank analysts stated, "We understand that this is a framework agreement, with some details still to be finalized." Investigations into specific industries, such as semiconductors, may lead to new tariffs being imposed on these industries within two weeks. However, these tariffs have further worsened the EU's export situation. Deutsche Bank estimates that the weighted average tariff rate faced by the EU for US exports will rise from around 1.5% in April to 15.2%. This could result in a contraction of up to 0.4 percentage points in the eurozone's economic growth rate next year, according to analysts.

French Prime Minister François Fillon has referred to the agreement as "the darkest day for Europe", suggesting that the EU has compromised with Washington. This sentiment reflects deeper discontent within the eurozone, especially in industries most severely affected by tariffs.

German Chancellor Merkel has stated that US tariffs mean Germany's economy will carry a "heavy burden". Meanwhile, he emphasized that time would prove that these tariffs do not serve the interests of the EU either.

Despite Germany and France's stock markets rising sharply at the opening on Monday, the gains were quickly eroded as market participants reassessed the agreement's benefits and drawbacks.

According to a report by Barclays analysts, US tariffs may push up US inflation, which could lead to a decline in eurozone inflation and subsequently lower the euro against the dollar. They stated that the inflation outlook has increased the likelihood of the European Central Bank cutting interest rates more sharply than currently expected, while the Federal Reserve may adopt a cautious attitude.

In the United States, this trade agreement is seen as a strategic victory. Investors believe that transatlantic relationships have become clearer once again, and high tariffs may further boost US inflation. This could ultimately strengthen the Fed's cautionary stance. Although a rate cut in September remains possible, the pace of rate cuts may slow and be more cautious.

Technical Analysis:

The euro closed with a long-bodied candle below the 10-20 day moving averages and the upper band of the rising trend channel, finding support near the 50-day moving average. The MACD has returned to its midline, seeking support. RSI shows a decline without a reversal. We need to observe the market's reaction to this candle body and whether it can effectively attack the 1669 point level. This point is the crossroads of the upper band and the middle point of the long-bodied candle.

(Daily chart of the euro against the US dollar, source: Hexun Finance) Beijing time 10:33, the euro is currently trading at 1.1598/99.