EUR/USD tests key resistance as US-EU trade talks reach critical juncture and ECB decision nears

• EUR/USD tests key resistance as the ECB rate decision and policy outlook come into focus.
• US-EU trade talks near breaking point ahead of tariff deadline; US Dollar weakens.
• EUR/USD recovers above the descending trendline from the July high to trade near 1.1700 at the time of writing.

EUR/USD is trading marginally higher on Tuesday as investors continue to monitor developments in trade and economic policy.

With the Euro (EUR) remaining in a longer-term uptrend against the US Dollar (USD), EUR/USD is trading above 1.1700 at the time of writing.

With the Federal Reserve (Fed) currently in a blackout period ahead of the July 30 rate decision, focus has now shifted to ongoing trade tensions.

These factors have recently provided a tailwind for the EUR/USD pair despite Europe's own economic concerns.

US-EU trade talks near breaking point ahead of tariff deadline

Trade tensions between the European Union and the United States remain fragile. With the August 1 tariff deadline swiftly approaching, trade negotiations have reached a critical stage. 

With talks currently underway in Brussels and Washington, markets are growing increasingly weary. July 22-23 meetings mark the final working-group window ahead of the hard deadline. 

If negotiations break down, the EU is preparing a package of retaliatory tariffs targeting key American exports, including digital services, aerospace products, and bourbon. This wouldn't offset the impact from the 30% tariff rate threatened by US President Donald Trump. 

However, it could continue to weigh on the US Dollar as more nations fail to solidify a deal that benefits both counterparts.

Moreover, sector-specific tariffs, such as those imposed on autos, steel, and aluminium, remain in effect. These have already been creeping into economic data releases, bringing this week's agenda back into focus.

ECB rate decision and policy outlook in focus as EUR/USD tests key levels

Focus for the Euro is on Thursday's docket, which includes the European Central Bank (ECB) rate decision. This will also be accompanied by the Monetary Policy Statement, which will provide additional insight into the potential trajectory of interest rates and the risks associated with the European economy.

With fundamental catalysts driving the broader narrative for EUR/USD, technical levels also play a significant role.

EUR/USD recovers above the descending trendline from the July high

EUR/USD has recently recovered above the 23.6% Fibonacci retracement level of the May-July uptrend at 1.1649, allowing the pair to rise above the 10-day Simple Moving Average (SMA) at 1.1664.

As these levels now provide support for the imminent move, the 20-day SMA at 1.1704 is serving as near-term resistance.

EUR/USD daily chart

Above that is another key resistance zone near 1.1712, where the descending trendline from the July highs intersects with the 20-day SMA.

While the Relative Strength Index (RSI) at 57 suggests that momentum continues to trade with a bullish bias, a confirmed breakout above 1.1720 is needed to signal a shift toward further upside.

If cleared, the path opens toward the July swing high at 1.1830, followed by the 1.1900 psychological level.

On the downside, any failure to hold above 1.1649 could result in a decline toward the July low of 1.1556 and the 38.2% Fibo level at 1.1538. Overall, the short-term bias leans cautiously bullish, but a clean break above trendline resistance is key for confirmation.