The EUR/USD pair remains under pressure: for the second consecutive week, bearish traders are targeting the 1.1550 support level, which corresponds to the lower Bollinger Bands line on the D1 timeframe. The primary reason behind this price dynamic is escalating U.S.–China tensions. The trade war continues to gain momentum, risk-off sentiment is intensifying, and the safe-haven U.S. dollar is increasingly in demand.
Additional pressure on the pair came from ZEW survey results, which unexpectedly fell into the "red zone." However, in our view, market participants may have rushed to judgment.
The German economic sentiment index came in at 39.3, while analysts had forecast an increase to 40.5. The result is somewhat contradictory. On one hand, it missed the forecast and landed in negative territory. On the other hand, the index has been rising for the second month in a row—after a sharp August drop to 34.7, it increased to 37.3 in September and then to 39.3 in October. This indicates the formation of an upward trend and some moderate improvement in business confidence. Notably, optimism is growing in export-oriented industries such as metallurgy, pharmaceuticals, engineering, and electrical equipment manufacturing, linked to a rebound in demand—particularly from China.
However, the ZEW current conditions index for Germany dropped to –80, falling 3.6 points from September instead of improving to the predicted –75. This result reflects worsening perceptions of the current economic environment, likely shaped by the renewed U.S.–China trade war, the effects of which will undoubtedly be felt in the Eurozone.
The euro area's aggregate ZEW economic sentiment index also declined in October to 22.7, while analysts had expected a rise to 30.2. This is the weakest reading since May of this year.
In summary, Germany—Europe's economic engine—is showing moderate improvement in expectations and investor optimism, while overall eurozone sentiment is weakening amid rising uncertainty and risk.
This mixed picture allows the European Central Bank to maintain a wait-and-see approach, especially given rising inflation in Germany and growing CPI in the Eurozone.
However, EUR/USD traders interpreted the ZEW release negatively for the euro: the single currency weakened not only against the U.S. dollar but also in many cross pairs (such as EUR/CHF and EUR/JPY).
The main driver behind the pair's decline remains the escalating U.S.–China trade war, which has strengthened risk aversion and increased demand for the safe-haven dollar—despite the ongoing (14-day) U.S. government shutdown and rising "dovish" expectations for upcoming Fed actions.
Donald Trump has announced the introduction of additional 100% tariffs on Chinese goods in response to China's new export restrictions on rare earth metals and magnets. China dominates global supply of these resources, accounting for about 90% of rare earth metal exports and more than 90% of global magnet production. These materials are critical for a wide range of technologies—from smartphones and consumer gadgets to electric vehicles and fighter jets. As such, the White House viewed China's decision as a threat to U.S. national security, and Trump's response was predictably severe.
Interestingly, two days ago, Trump posted a conciliatory message on social media, stating that "everything will be fine with China" and that Xi Jinping "does not want to plunge his country into a Great Depression." Despite the friendly tone, the message was essentially an ultimatum: either Beijing reverses its decision, or Washington enforces an embargo on Chinese goods.
China, unsurprisingly, rejected the "offered hand of friendship," stating that if the U.S. wants to fight, "then China will fight to the end." While both sides have formally left the door open for negotiations, real actions point to intensifying confrontation.
For instance, starting today, the U.S. and China have introduced new reciprocal port fees. Vessels owned by American companies or with more than 25% U.S. equity will be charged $56 per net ton when entering Chinese ports. These rates are set to increase: to $90 starting April 17, 2026, and to $125 from April 17, 2027. Additionally, China's Ministry of Commerce announced sanctions against five U.S. subsidiaries of South Korean shipping giant Hanwha Ocean, accusing them of assisting U.S. restrictions on China's maritime sectors (shipbuilding and logistics).
As we can see, the trade war machinery continues to spin, fueling risk-off sentiment and supporting demand for the U.S. dollar.
However, considering short positions on EUR/USD is only advisable if sellers break through the 1.1550 support level (the lower Bollinger Bands line on the D1 chart), which has so far resisted bearish pressure (the pair has been testing this target for two consecutive weeks). A break below this level would pave the way for further decline, with the next bearish target at 1.1480 (the lower Bollinger Band line on the weekly chart).
