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26.05.2025 03:35 PM
The Joy Was Short-Lived

The euro, the pound, and other risk assets responded with a momentary surge following U.S. President Donald Trump's announcement that he would extend the deadline for implementing 50% tariffs on the European Union until July 9. This came right after a phone call with European Commission President Ursula von der Leyen. "We had a very nice conversation, and I agreed to postpone the meeting," Trump told reporters.

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Von der Leyen, who heads the EU's executive body, had earlier stated on Sunday that "Europe is ready to swiftly and decisively advance negotiations," but that a "good deal" would require "time until July 9." This is the date originally set to end Trump's 90-day pause on his so-called reciprocal tariffs.

Today, EU Trade Committee Head Maros Sefcovic is expected to hold a phone call with the U.S. Commerce Secretary Howard Lutnick.

Recall that in April the EU had planned to introduce a 20% tariff, but a temporary pause was later enacted, reducing the rate to 10%, which will now remain in place until July 9.

Last Friday, Trump threatened to impose higher tariffs of 50% on the EU starting June 1, complaining that the bloc was dragging out negotiations and unfairly targeting American companies with lawsuits and regulations. This escalation in rhetoric forced the EU to act, highlighting growing transatlantic tensions and casting doubt on the future of U.S.-EU trade cooperation.

Clearly, the threat of new tariffs is a powerful lever meant to accelerate negotiations and pressure the EU into making concessions on several disputed issues.

Such statements from Trump are not new in his political playbook. The U.S. President has repeatedly used tariffs as a tool of leverage to achieve his goals in trade talks with other countries. However, such an aggressive stance toward the EU—a key trading partner—has raised serious concerns in Europe and could trigger retaliatory measures, potentially leading to a full-scale trade war.

The EU is trying to figure out what Trump ultimately wants from the trade negotiations. Officials have suggested that the EU and the U.S. could mutually reduce many tariffs to zero, but Trump remains focused on what he calls non-tariff trade barriers. Deputy Treasury Secretary Michael Falkender recently stated that the U.S. faces the "dual challenge" of negotiating tariffs with the EU as a bloc while also addressing most non-tariff barriers in talks with individual European countries, creating a "negotiation problem."

Last week, the EU shared a trade proposal with the U.S. in an attempt to reenergize talks, and Sefcovic held a phone call with his American counterpart, U.S. Trade Representative Jamieson Greer. As mentioned earlier, EU ambassadors will meet today to discuss the status of negotiations and allow the Commission to brief member states on the outcome of this call.

According to media reports, the new EU proposal covers tariff and non-tariff barriers, along with strategies to strengthen economic security, mutual investment, strategic procurement, and cooperation on global challenges. Some experts estimate that Trump's 50% tariff threat could impact $321 billion in U.S.-EU trade, resulting in a 0.6% drop in U.S. GDP and pushing prices up by more than 0.3%.

Technical Outlook for EUR/USD:

Currently, buyers need to focus on regaining control of the 1.1416 level. Only then can a test of 1.1450 be expected. From there, the pair may aim for 1.1490, although doing so without support from major players will be challenging. The ultimate target is 1.1520. If the pair falls, I expect significant buying interest around 1.1370. If there is no activity at that level, it would be preferable to wait for a retest of the 1.1335 low or consider opening long positions from 1.1300.

Technical Outlook for GBP/USD:

Buyers of the pound need to reclaim the nearest resistance at 1.3590. Only then can the pair aim for 1.3620, which will be difficult to surpass. The ultimate target lies in the 1.3640 level. In the event of a decline, bears will try to regain control at 1.3545. If they succeed, a break of this range will deal a serious blow to the bulls and push GBP/USD toward the 1.3510 low, with the potential to reach 1.3475.

Jakub Novak,
Analytical expert of InstaForex
© 2007-2025
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