Investors considered Kevin Warsh to be the most hawkish candidate for the position of Fed chair and began buying the US dollar. However, his views are actually detrimental to the greenback. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The US dollar is failing to respond appropriately to the news.
- Kevin Warsh’s views are negative for the greenback.
- The split in the US K-shaped economy will intensify.
- Long trades can be considered if the EUR/USD pair breaks through 1.1835.
Weekly US Dollar Fundamental Forecast
The first reaction is not always correct. As events in 2026 show, it is almost always incorrect. The US dollar plummeted due to the US administration’s tariff threats against Europe and Donald Trump’s calls to weaken the currency. Finally, it fell due to rumors of coordinated currency interventions by the US and Japan. All three instances ultimately ended in a rollercoaster ride and a fall in EUR/USD quotes. However, the greenback’s rise in response to the Warsh factor may also prove to be a mistake.
The markets perceive the former FOMC governor as the most hawkish of all the candidates. His young age and experience at the Fed give investors reason to believe that Kevin Warsh can resist the US administration and protect the Fed’s independence. The dollar’s credibility, which had tumbled, is recovering, the “Sell America” trend is slowing, and the EUR/USD pair is falling.
However, Kevin Warsh, like a wolf in sheep’s clothing, has expressed two ideas that are actually harmful to the US dollar. He believes that rates should be lowered, as high inflation is not necessarily entrenched in a strong economy. The Fed chair candidate sees high inflation being caused by the ballooning balance sheet, which needs to be reduced. Such measures would steepen the yield curve, which has historically bolstered the EUR/USD pair.
EUR/USD Performance and US Yield Curve
Source: TradingView.
The futures market gives a 63% probability that the federal funds rate will be cut twice in 2026. Moreover, the odds fell after Donald Trump’s announcement of the new Fed chair nominee. However, there may actually be four or even five acts of monetary expansion, which is in line with Stephen Miran’s views. Not only because he, like Kevin Warren, was appointed by the US president.
In the world of advanced technology, you need to take a fresh look at the economy and monetary policy. Until recently, investors were wondering why the labor market was cooling down despite impressive GDP growth. AI technology sheds light on this. Now that OpenAI and Anthropic are going beyond providing chatbots and creating systems that can replace law and accounting firms, as well as software manufacturers, the divide may widen even further.
In such a K-shaped economy, inflation may fall to zero. Then why does the US have such high interest rates? What seemed like Donald Trump’s populism and irrationality is turning into a new reality. This means that the US president’s desire to weaken the dollar should be viewed in a positive light. The key question remains: When exactly will it be the right time to buy the EUR/USD pair?
Weekly EURUSD Trading Plan
If the euro returns above 1.1835, long positions can be considered. On the other hand, if EUR/USD quotes fail to break through the key resistance level, short positions can be opened.
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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