empty
16.05.2025 12:39 AM
The Euro Didn't End Up in the Junkyard

Chinese goods have flooded the European market, but EUR/USD bulls aren't alarmed by this. While the U.S. has reduced tariffs on imports from China, the weighted average tariff still sits at 39% — a notably high rate. As a result, Beijing is looking for alternative export routes and has found them in the EU. For now, Chinese goods may be routed through Southeast Asia and Latin America, but should the euro fear a shrinking trade surplus?

China's trade surplus with the European Union hit a record $90 billion between January and April. According to Chinese data, exports to the EU this year are the second-highest on record, with the top spot occurring in 2022 during the post-COVID recovery. Notably, the pace of exports accelerated once it became clear that Donald Trump would become the 47th President of the United States. China's trade deficit with Germany, which stood at over $18 billion in 2020, flipped to a $12 billion surplus by 2024.

China–Germany Trade Dynamics

This image is no longer relevant

At first glance, this inflow of goods into Europe suggests less money flowing in, which should, in theory, reduce demand for the euro and push its value down. But in reality, that's not the case. When the current account balance worsens, the capital account often improves, thanks to the principle of double-entry balance. This means more investment flows into the EU, supporting European stock indexes and helping EUR/USD rise.

Looking ahead, 2026 could be even more favorable for the euro than 2025. According to the European Bank for Reconstruction and Development, U.S. tariffs will primarily hit Germany's export-dependent economy. However, fiscal stimulus packages under Friedrich Merz are expected to boost German GDP next year.

The U.S., by contrast, is heading in the opposite direction. Donald Trump believes other countries are cheating America. In reality, they receive dollars for their exports and reinvest them into U.S. securities. If the U.S. narrows its trade deficit, its partners' surpluses will shrink too. This would reduce their purchases of American assets, putting further downward pressure on the dollar.

U.S. Retail Sales Indicators

This image is no longer relevant

This is why neither the acceleration in U.S. retail sales nor the sharpest drop in producer price inflation since April 2020 is helping EUR/USD bears. Yes, inflation is slowing, but the Federal Reserve is unlikely to cut rates while the economy remains strong. Eventually, the combination of high tariffs and borrowing costs will weigh the economy down. Should we be surprised by the USD index's downward trend?

On the daily EUR/USD chart, the battle continues around the lower boundary of the fair value range at 1.1215–1.1420. Bulls failed to break through on the first attempt, but a successful second try would increase the likelihood of a resumed uptrend and could justify opening long positions in the euro against the U.S. dollar.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

What to Pay Attention to on June 10? A Breakdown of Fundamental Events for Beginners

There are a few macroeconomic reports scheduled for Tuesday. The economic event calendars for both the Eurozone and the United States are empty, while the UK will release reports that

Paolo Greco 06:40 2025-06-10 UTC+2

GBP/USD Overview – June 10: A New Trial for Trump

The GBP/USD currency pair showed no interesting movements on Monday. However, given the current situation in the U.S., it's hard to envision any growth for the dollar. It turns

Paolo Greco 04:11 2025-06-10 UTC+2

EUR/USD Overview – June 10: Riots, Protests, Unrest

The EUR/USD currency pair traded very sluggishly on Monday. That's unfortunate because the news background becomes more interesting each day. This time, the news was not about trade tariffs

Paolo Greco 04:11 2025-06-10 UTC+2

EUR/USD: Calm Before the Storm? The Market Awaits News from London

The EUR/USD pair continues to trade within a 100-pip price range of 1.1350–1.1450, bouncing between its boundaries. Buyers are trying to hold within the 1.14 area, while sellers

Irina Manzenko 00:38 2025-06-10 UTC+2

The Dollar Feels Its Strength

A strong economy means a strong currency. In early June, the U.S. economy began to look strong again. EUR/USD bears anticipate a correction in the current upward trend, prompted

Marek Petkovich 00:38 2025-06-10 UTC+2

Strong Employment Report Supports the Canadian Dollar

Net employment change in May amounted to +8.8 thousand jobs, exceeding April's growth and presenting very strong data, especially against expectations — a loss of about 15 thousand jobs

Kuvat Raharjo 15:05 2025-06-09 UTC+2

AUD/USD. Analysis and Forecast

At the beginning of the new trading week, the AUD/USD pair is showing steady upward momentum, recovering from a slight pullback and once again approaching the highs seen in November

Irina Yanina 14:51 2025-06-09 UTC+2

USD/JPY. Analysis and Forecast

The USD/JPY pair is showing moderate weakness on Monday, dropping toward the psychological level of 144.00. The decline is driven by a combination of factors, including the strengthening

Irina Yanina 14:05 2025-06-09 UTC+2

WTI - West Texas Intermediate. Analysis and Forecast

At the start of the new week, prices for West Texas Intermediate (WTI) crude oil are attempting to stay near Friday's highs. Senior U.S. officials, including Treasury Secretary Scott Bessent

Irina Yanina 14:02 2025-06-09 UTC+2

Old Donald the Fighter Seems to Have Broken Down (there is a likelihood of continued growth in CFD contracts #NDX and #SPX)

Despite all the hardships, uncertainty, and overall market tension, stock indices persistently climb higher. Investors believe that Donald Trump will have to back down and retreat in his confrontation with

Pati Gani 10:06 2025-06-09 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.