U.S. Dollar's Technical and Fundamental Crossroads: Tariff Delays and EUR/USD Support Offer a Strategic Entry

The U.S. dollar faces a critical juncture, where technical price dynamics and geopolitical uncertainties are converging to create a compelling opportunity for dollar bulls. While the euro has surged to three-year highs against the dollar, a confluence of factors—including delayed tariff implementation, Fed policy signals, and overextended technicals—suggests the greenback could rebound sharply if traders seize the moment.

Technical Analysis: EUR/USD at a Pivotal Inflection Point

The EUR/USD pair has advanced to 1.1690, its highest level in 2025, fueled by eurozone structural shifts and U.S. dollar weakness. Yet, this rally appears increasingly vulnerable to a correction. Key support levels at 1.1715–1.1680 now act as a critical battleground. A sustained breach below this zone could trigger a sharp reversal, as overbought technicals and geopolitical risks realign.

The RSI (14-day) has neared overbought territory (65+), signaling exhaustion in the euro's rally. Meanwhile, the MACD line has crossed below its signal line, hinting at bearish momentum. If the pair slips below 1.1680, it could accelerate toward 1.1540–1.1500, creating a buying opportunity for the dollar.

Fundamental Drivers: Fed Policy and Tariff Uncertainty

The Federal Reserve's decision to hold rates steady at 4.25%–4.50% in June, despite expectations of two cuts by year-end, has bolstered the dollar's near-term prospects. While the Fed remains open to easing in late 2025, its cautious stance reflects geopolitical risks—from trade wars to Middle East tensions—that could disrupt global growth.

The delayed implementation of U.S. tariffs on European goods until August 1 has reduced near-term market volatility but left uncertainty unresolved. This pause creates a “wait-and-see” environment where dollar bulls may gain the upper hand. If negotiations yield a phased tariff reduction or exemptions, the dollar could rally further, particularly against the euro.

Investment Strategy: Positioning for a Dollar Rebound

The technical and fundamental alignment suggests a high-probability trade: buy the U.S. dollar when EUR/USD dips to 1.1680, with a stop-loss below 1.1650. A break of this support zone would validate a shift in momentum, with initial targets at 1.1540 and 1.1495.

Traders should also monitor Fed funds futures for clues on rate-cut expectations. If markets price in fewer cuts (as the Fed now implies), the dollar's appeal will rise. Conversely, a last-minute tariff escalation or hawkish Fed pivot could amplify dollar gains.

Risks and Considerations

While the setup is compelling, risks remain. A breakthrough above 1.1720 could reignite the euro's rally, eroding dollar gains. Geopolitical events—such as further Israeli-Iranian clashes or a collapse in trade talks—might also sway sentiment. Investors should cap positions to 2–3% of capital and use stop-losses rigorously.

Conclusion: A Dollar Turnaround Awaits the Brave

The U.S. dollar's technical and fundamental crossroads present a rare entry point for contrarians. With EUR/USD nearing critical support and macro risks favoring dollar stability, now is the time to position for a rebound. Traders who act decisively at 1.1680 could capitalize on a shift in momentum—one that could extend the greenback's recovery well into the third quarter.

In this volatile landscape, patience and discipline will reward those who bet on the dollar's resilience.