A strong economy means a strong currency. In early June, the U.S. economy began to look strong again. EUR/USD bears anticipate a correction in the current upward trend, prompted by moderate optimism in the May labor market data. But the shift began earlier—when Donald Trump got scared—not of a stock market crash but of how his policies were impacting U.S. GDP.

To ensure a successful summer, the White House revised some plans. The first deviation occurred as early as April when the average tariff dropped from around 20–25% to 10–20%. This had a positive effect on outlooks and signaled to markets that the worst was likely behind.

The logic is simple: a 15 percentage point increase in import tariffs would accelerate inflation and cut real GDP growth by 1.5 percentage points, given that imports make up about 10% of the U.S. economy. The lower the tariffs, the better. However, China's experience casts doubt on this optimism.

Dynamics of China's Exports to the U.S. and Other Countries

Despite the May agreement to reduce U.S. tariffs from 145% to 30%—according to Bloomberg—China's exports to the U.S. fell by 34.4%. This marks the steepest drop since February 2020. Beijing is now trying to reroute its shipments to the U.S. through other countries. Exports via these countries rose by 11%, including a 22% increase through Vietnam. However, these circumvention schemes are raising concerns about Vietnam's trade balance with the U.S., which now looks dangerously skewed.

A second positive development from the White House, in terms of supporting the U.S. economy, is its retreat from the idea of fiscal consolidation. Instead of cutting budget spending as previously promised, the administration is ramping it up. The spending package could cost trillions of dollars and widen the budget deficit. Still, markets were more concerned about the U.S. cutting spending and shifting to austerity than fiscal overspending. As Treasury Secretary Scott Bessent said, there will be no default.

I believe markets are getting carried away with the idea that the worst is over. In reality, tariffs could rise again. Moreover, deteriorating relations with former allies deprive Washington of its usual crowd of Treasury bond buyers. At the same time, trust in everything in America is eroding. Combined with continued uncertainty over the White House's economic policy, this supports the sustainability of the EUR/USD uptrend.

Technical Picture

On the daily chart of the main currency pair, bulls failed to push prices above the upper boundary of the fair value range (1.1210–1.1440). This failure signals buyer weakness and justifies considering short-term EUR/USD sales if support at 1.1385 is breached.