The era of a strong US dollar has come to an end, and even the euro, which has many vulnerabilities, is currently performing significantly better than the greenback. Traders are taking advantage of EURUSD pullbacks to open long trades, and the ECB can provide support in this regard. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Capital outflows led to the worst start for the US dollar since 1995.
- International trade may decline by 1.5% in 2025.
- ECB rate cuts will be a reason to buy the euro.
- Long trades can be opened as long as the EURUSD pair is trading above 1.1290.
Weekly US Dollar Fundamental Forecast
The strong US dollar era is over. Investors are abandoning US assets due to the US tariff policies. The US dollar has experienced its most challenging beginning to the year since 1995, with an 8% decline against a basket of major currencies. Its vulnerability is a cause for concern not only for foreign exporters during trade wars but also for US companies that receive revenue from overseas. In both cases, revenues are declining, exerting a negative influence on the global economy.
According to the WTO, international trade is expected to contract by 0.2% in 2025 due to the impact of Donald Trump’s tariffs, a significant shift from the previously projected 2.7% growth. Furthermore, if the US proceeds with import duties, the decline is estimated to be 1.5%.
Global Trade Volume Forecast
Source: Bloomberg.
On paper, these estimates should have exerted downward pressure on the export-oriented eurozone economy and its currency. However, investors flee the US market, seeking refuge in Europe, primarily in German bonds. Against this backdrop, the euro has strengthened.
The uncertainty surrounding the US economic policy remains unresolved and, in fact, is growing. Along with NVIDIA’s statement regarding the headwinds associated with exporting chips to China, this uncertainty has pushed US stock indices down, fueling the ongoing sell-off in the US dollar. This is particularly relevant given that the Fed Chairman signaled a complex scenario in which tariffs spur prices while cooling the labor market. Since the Fed focuses on its dual-mandate goals, implying maximum employment and stable prices, the US regulator will be akin to a goalkeeper who is uncertain about which corner to jump, trying to save a penalty kick.
US Dollar Spot Index and Global Trade Policy Uncertainty Index
Source: Bloomberg.
Despite the 1.4% uptick in US retail sales m/m in March, the greenback remained under pressure. Investors expected that consumers, alarmed by the tariffs, would increase their purchases, leading to a future slowdown in the indicator.
The US dollar’s current state of stagnation has enabled the euro to emerge as the dominant international currency, despite its inherent vulnerabilities. One of these is the expectation that the deposit rate will be reduced from 2.5% to 2.25% at the Governing Council meeting on April 17. Sixty of the sixty-two Bloomberg experts predicted this scenario. One expert is inclined to keep the rate unchanged, while another predicts a more aggressive monetary expansion – a cut of 50 basis points.
Weekly EURUSD Trading Plan
Should the ECB refrain from a rate cut, the decline in the EURUSD pair on rumors of the ECB continuing its monetary policy easing cycle will present a valuable opportunity to open long positions on the major currency pair. As long as the euro remains above the support level of 1.129, market sentiment will be bullish.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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