EUR/USD Tumbles to 1.1100 as Dollar Soars on US-China Trade Breakthrough

The EUR/USD pair plummeted past 1.1100 on May 12, 2025, as the US Dollar surged following a landmark US-China agreement to slash tariffs by 115% for 90 days, a move unveiled after intense Geneva negotiations. This interim trade ceasefire, aimed at curbing soaring consumer inflation fears, propelled the US Dollar Index (DXY) to a robust 101.60. The Euro, meanwhile, struggled under the weight of stagnant US-EU trade discussions and conflicting ECB policy stances. This report delves into the EUR/USD drop, the trade deal’s ripple effects, and the pair’s technical trajectory.

The US-China tariff reduction, trimming duties to 10% on American goods and 30% on Chinese imports, signals a temporary thaw, though a lingering 20% fentanyl surcharge on Chinese products clouds the outlook. US trade officials highlighted productive talks on resolving the fentanyl issue, hinting at possible further easing if cooperation holds. This deal, paired with recent US trade pacts with the UK, Japan, and India, has bolstered the Dollar, while the lack of progress in US-EU trade negotiations has left the Euro vulnerable, fueling concerns about the Eurozone’s economic competitiveness amid China’s low-cost export surge.

The Eurozone faces additional headwinds from divergent ECB views. Some policymakers push for rate cuts to mitigate US trade pressures and sustain a disinflation trend (April’s projected rate at 1.8%), while a prominent ECB voice insisted rates should stay neutral to shield against inflation exceeding the 2% target amid global trade turbulence. This uncertainty, compounded by fears that China might redirect its affordable goods to European markets, has eroded Euro confidence, amplifying its decline against the Dollar.

Technically, EUR/USD’s bearish turn is evident, with the pair breaching the 1.1200-1.1440 range sustained over the last 20 trading days, dipping below the 200-period Exponential Moving Average (EMA) around 1.1200. The 14-period Relative Strength Index (RSI) dipping below 40.00 underscores mounting selling pressure. The April 28 high of 1.1425 poses a key resistance, while the March 27 low of 1.0733 offers critical support. The pair’s next direction may hinge on Tuesday’s US Consumer Price Index (CPI) data, forecasted at a steady 2.4% year-over-year, and Federal Reserve insights on how the trade détente shapes inflation and rate expectations.