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Don't look for a black cat in a dark room—especially if it isn't there. The verdict by the U.S. Court of International Trade declaring the White House's universal tariffs illegal has left financial markets stunned. Investors are now scrambling for answers: how will the U.S. dollar respond to a fundamental shift in market narratives? And will the Supreme Court uphold the administration's appeal?
White House officials are doing their best to maintain a brave front. National Economic Council Director Kevin Hassett stated that the court's decision was incorrect and expressed confidence that the appeal would be successful. Trade advisor Peter Navarro cited other legal provisions that supposedly justify the tariffs. The U.S. administration is pretending nothing extraordinary has happened, and everything will soon return to normal.
The popular "Sell America" strategy may also return if that happens. If not, the implications of repealing the tariffs need to be assessed. In April, tariff revenues hit a record $16.5 billion. The White House has assured that even more revenue will follow. Donald Trump and his team plan to use these funds to offset fiscal stimulus measures such as tax cuts.
According to the Congressional Budget Office, the "big and beautiful" tax-and-budget bill—as one Republican called it—is projected to cost $3.8 trillion over the next decade. If the tariffs are repealed, there will be no offsetting revenue. The government will have to plug the gap by issuing more Treasuries. As trust in U.S. assets declines, demand for Treasuries will also fall, creating serious challenges for Washington.
These are the core arguments of the EUR/USD bulls. Meanwhile, bears argue the opposite: the rollback of the White House's tariff policy will shift investor focus back to monetary policy divergence and growth differentials.
With the Federal Reserve expected to maintain high rates at least until September and the European Central Bank likely to begin cutting rates soon, EUR/USD should decline according to this logic. Yes, the European economy outpaced the U.S. in Q1, but this was mainly due to front-loaded imports into the U.S.—a temporary phenomenon. Its expected reversal in Q2 should benefit the U.S.
However, the second estimate of U.S. GDP undermined this well-balanced bearish theory. The economy contracted by 0.2%, not 0.3% as initially reported. More critically, consumer spending grew by just 1.2%, down from the previously estimated 1.8%—the weakest result in nearly two years. If tariffs are already hitting U.S. consumers, the situation could rapidly deteriorate.
On the daily EUR/USD chart, bears' failure to break through the lower boundary of the fair value range (1.1200–1.1400) indicates their weakness. A bounce from the 1.1200–1.1225 support zone triggered the formation of long positions. It makes sense to hold these longs for now.
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