EU-US Trade Deal: Details Yet to Be Decided

The EU-US deal averts an escalation of tariffs, but, like the deal with Japan a week ago, there are still many unclear parts and conflicting views about how it will affect the world's two largest economies.

Latest Developments

• The EURUSD fell in early Monday trading after the EU and the US reached a tentative trade deal late on Sunday.
• Almost all EU exports will be subject to a 15% base tax, while a 50% tariff on steel and aluminium remains in place, as well as a separate tariff regime for pharmaceuticals and semiconductors.
• The initial market reaction was green across the board on European bourses, as higher tariffs were avoided.
• Both sides touted the benefits of the agreement, but analysts remained divided.

The 15% Tariff Floor

US and EU trade negotiators met in Scotland for a final push on a deal reached on Sunday, ahead of the August 1 deadline. According to reports, an agreement was reached after it became apparent that the that the US would accept. This would entail concessions from the EU, which had initially sought a zero-for-zero regime. However, this was acceptable when paired with exemptions for strategic sectors, such as aircraft, certain chemicals, and semiconductor equipment. The deal also entailed the EU buying $750 billion in energy and making an additional $600 billion in investments in the US. European automakers would see their tariffs reduced from 27.5% to the 15% base rate.

US President Donald Trump hailed the deal as the "biggest ever made," while EU Commission President Ursula von der Leyen highlighted that it would bring stability. Although many , the initial market reaction was positive. Equities on both sides of the Atlantic rose, the as analysts suggested the deal made it more likely the ECB would ease sooner.

The Devil is in the Details

Like the announced last week, the EU-US deal has been characterised as "tentative," given the potential for different interpretations of some of the key provisions, including how the investment will be spent. Additionally, the US is still studying imposing separate pharmaceutical tariffs. Both sides stated that negotiations would continue around key elements, such as steel exports, while the EU aims to expand the no-tariff list to include additional products.

Market attention now shifts to negotiations between the US and China, set to begin on Monday, and talks between the US and South Korea, expected on Thursday.

Can Fibre's Break Lower Be Sustained?

The EURUSD (EUR/USD) fell almost 100 pips in early trading on Monday after the deal was announced. The sharp move formed a double bottom for now following a false break, but a continuation of the move could find lower support at last week's low of 1.1620. A break below that level could encounter support at the swing low of 1.1560. However, if the double bottom holds, the next resistance lies in the middle Bollinger Band at 1.1750, with the next level being the near-term swing high of 1.1790.