Euro's Six-Day Decline Approaches a Key Support! Central Bank Policies and Tariff Risks Become Critical Variables

Why has the euro exchange rate been falling continuously? There are mainly two driving forces behind this: on one side, the trading sentiment generated by Germany's fiscal stimulus has gradually dissipated; on the other side, the shadow of US tariff policies has re-emerged.

**Tariffs Become the Core Variable in Exchange Rate Movements**

According to estimates by the European Central Bank, if the US imposes a 25% tariff on imports from Europe (scheduled to be implemented on ), the Eurozone's first-year economic growth rate will decline by approximately 0.3 percentage points. This expectation has already begun to impact market sentiment, pushing the euro lower. As of March 26, the euro against the US dollar has fallen for six consecutive days, with the quote dropping to around 1.078.

**Divergence in Central Bank Policies Supports Future Trends**

From a fundamental perspective, the policy expectations of the two major central banks—Europe and the US—have begun to diverge. The Federal Reserve's expectation of rate cuts this year has been reduced from 3 times to 2 times, reflecting a relatively strong US dollar; meanwhile, ECB Governing Council member Villeroy de Galhau stated that the current deposit rate of 2.5% is expected to fall to 2% by late summer. The market has fully priced in the ECB's rate cut expectation for June, with a 65% probability of a rate cut in April, and more easing policies are expected in the second half of the year. This policy expectation gap may continue to exert downward pressure on the euro.

**Technical Perspective: Two Directions, Two Outcomes**

From a technical standpoint, the euro against the dollar is hovering near a key support level. If it breaks below 1.075, a larger downside space will open, with the next targets at 1.07 and 1.06; conversely, if the exchange rate remains above the 21-day moving average, a rebound could be initiated.

**Investment Advice: Wait for Certainty on @E2@**

Institutions like Morgan Stanley suggest maintaining a cautious stance before tariffs are implemented, considering closing euro long positions to avoid potential risks. The future direction of the euro exchange rate ultimately depends on the actual implementation strength of the tariff policy—if it is more moderate than expected and leaves room for negotiations, it will be positive for the euro; otherwise, it will further suppress it.