Why Is the Euro Continually Falling? Tariff Uncertainty Looms, Breakout Risks Are Imminent

The euro against the US dollar has been somewhat tricky recently. On March 26, it reported 1.078, having fallen for six consecutive days, and approaching the key support level of 1.075. Once this level is broken, the market could decline into deeper zones around 1.07 or even 1.06.

**Short-term Trigger Factors: Market Sentiment Shifts**

The optimism brought by Germany’s previous fiscal stimulus measures has faded, and investor enthusiasm has waned. More concerning is the threat of tariffs—on April 2, the US is set to implement "reciprocal tariffs," which has once again unsettled the market.

According to the European Central Bank’s assessment, if the US imposes a 25% tariff on European goods, the Eurozone’s economic growth could be slowed by 0.3 percentage points in the first year. It may not sound like much, but it significantly impacts confidence in exchange rate volatility.

**Technical Perspective: Critical Point Reached**

From the chart, the euro against the dollar is approaching the support level’s edge. There are two possible directions:

- If it breaks below 1.075, it could open up larger downside space, with the next targets at 1.07 and 1.06
- If it stays above the 21-day moving average, there remains a possibility of rebound and breakout

**Fundamental Factors: Central Bank Expectations and Tariff Trends Are Key**

Expectations for central bank policies are quietly changing. The Federal Reserve’s rate cut outlook for the year has been revised down from 3 to 2 times, while market expectations for the European Central Bank’s rate cuts have increased. ECB Governing Council member Villeroy de Galhau revealed that the current 2.5% deposit rate could fall to 2% by late summer. Data shows that the market has fully priced in a rate cut in June, with a 65% probability of a cut in April, and more easing measures could be announced from September to December.

This suggests Europe’s easing cycle may lead the US, exerting long-term pressure on the euro exchange rate.

Tariffs remain a variable. If reciprocal tariffs are implemented more aggressively than expected, they will further depress the euro. Conversely, if negotiations leave room for maneuver and tariffs are weaker than anticipated, the euro could be supported.

**Operational Advice: Caution Before April 2**

Morgan Stanley recommends traders consider closing long positions on the euro and pound before April 2 when tariff plans are announced, to avoid potential risks. After all, short-term volatility caused by uncertainty often does more damage than the trend itself.

In summary, the reason for the euro’s continuous decline ultimately boils down to the dual pressure of tariff expectations and central bank policies. Whether the euro can hold above 1.075 will be a key focus moving forward.