EUR/USD gains as Trump's moderately fearful tariff plan diminishes USD's appeal

• EUR/USD remains firm above 1.0400 as US President Donald Trump has announced lower-than-anticipated tariffs on China.
• ECB's Lagarde warned that the Euro bloc should be prepared for US tariffs.
• ECB's Stournaras commented that the policy-easing pace could accelerate if the US imposes tariffs on the Eurozone.

EUR/USD clings to gains above the key support of 1.0400 in Wednesday's European session after a strong recovery move in North American trading hours on Tuesday. The major currency pair remains firm while investors gauge explicit United States (US) tariff plans to build fresh positions.

In two working days, US President Donald Trump has announced 25% tariffs on Mexico and Canada and 10% on China, which will come into effect on February 1. Trump has also threatened to fix trade imbalances with the Eurozone but has not yet provided clear details. On Monday, Trump said he would remedy the trade imbalance either by "raising tariffs or Europe buying more US oil and gas".

These tariff calls appear less fearful than what market participants had anticipated from Trump's election campaign comments, diminishing the US Dollar's (USD) safe-haven demand. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades with caution to near its two-week low of 107.90.

Daily digest market movers: EUR/USD remains firm despite ECB Stournaras sees interest rates near 2% by 2025

• EUR/USD has significantly recovered in the past few trading days. However, its outlook remains uncertain, as President Trump has threatened to impose tariffs on the Eurozone. Additionally, the European Central Bank (ECB) is expected to unwind its policy restrictiveness further and move toward the neutral target of 2%.
• In response to Trump's threat of tariff hikes, European Union (EU) ministers have commented that they should improve the bloc's competitiveness and developing capital markets rather than retaliate. ECB's President Christine Lagarde said in an interview with CNBC on the sidelines of the World Economic Forum (WEF) on Wednesday that Europe must be "prepared for any US tariffs". Lagarde added that tariffs would be more "selective."
• EU-US trade relations have also worsened because of Trump's withdrawal of American membership from the Paris Climate Agreement, which directs members to establish their own targets for reducing greenhouse gas emissions.
• On the monetary policy front, traders price in four 25 basis points (bps) interest rate cuts by the ECB coming consecutively in the next four meetings. ECB policymaker and the Governor of the Bank of Greece Yannis Stournaras said that interest rate cuts should be at the order of "25 bps each time to get close to 2% by the end of 2025". Stournaras warned that possible US tariffs would "speed up interest rate cuts" in the Eurozone.

Technical Analysis: EUR/USD clings to gains around 1.0430

EUR/USD trades firmly near its two-week high of 1.0430 in Wednesday's European session after rebounding from an over two-year low of 1.0175. The major currency pair recovered after a divergence in momentum and price action. The 14-day Relative Strength Index (RSI) formed a higher low, while the pair made lower lows. The negative divergence would be confirmed if the pair decisively breaks above the immediate resistance of 1.0440

The near-term outlook of the shared currency pair has improved as it has climbed above the 20-day Exponential Moving Average (EMA), which trades around 1.0358. Meanwhile, the longer-term outlook is still bearish as the 200-day EMA at 1.0700 is sloping downwards.

Looking down, the January 13 low of 1.0175 will be the key support zone for the pair. Conversely, the psychological resistance of 1.0500 will be the key barrier for the Euro bulls.