Delays in tariffs are now seen as a positive factor for the US dollar, as they are likely to slow the US economy. Meanwhile, the ECB is preparing for trade wars, weighing on the euro. Let’s discuss these topics and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The US has waived tariffs on some imports from Mexico and Canada.
- The ECB lowers its GDP forecast and raises its inflation forecast.
- Investors are waiting for the US employment report.
- Short trades on the EURUSD pair can be opened if the price falls below 1.0765.
Daily Euro Fundamental Forecast
The White House tariff policy is causing panic in the financial markets. Stock indices are falling even though Mexico and Canada have been exempted from most of the tariffs, and the EURUSD pair has almost hit the ceiling as a lot of negative news has already been priced into the US dollar. Against this backdrop, the release of the US Nonfarm Payrolls for February will spark another volatile session in the Forex market.
Donald Trump has decided to postpone the previously announced tariffs until April on goods from the US neighboring countries that fall under the terms of the USMCA. The reprieve will cover about 50% of Mexican imports and 38% of Canadian imports. In response, Ottawa delayed the imposition of $87 billion in tariffs and suggested that Washington renegotiate the terms of the Free Trade Agreement.
The USMCA, which went into effect at the end of President Donald Trump’s first term and, by its terms, cannot be renegotiated until 2026, is a sore point for the White House. Trump has claimed that trading partners and allies are parasites who are living off the US. That is, they are not increasing American wealth but stealing it. This applies not only to Mexico and Canada but also to Ukraine.
Euro Weekly Performance Against US Dollar
Source: Bloomberg.
Investors have no idea what Donald Trump really wants. When there is a lack of clarity, people turn away. Against this backdrop, resurfaced German exceptionalism has accelerated capital flow from the US to Europe and allowed the euro to show the strongest weekly performance since the end of the pandemic.
However, the European Central Bank and the anticipation of US labor market statistics were able to halt the rally. The outcomes of the March meeting of the European Central Bank left a lasting impression. The EU regulator has cut the deposit rate by 25 basis points to 2.5%, marking the sixth reduction in seven meetings. Inflation forecasts for 2025 were raised to 2.3%, and GDP was revised downwards to 0.9%. At the same time, Christine Lagarde signaled a shift towards a more evolutionary approach, indicating the possibility of a pause in future rate changes.
ECB Inflation Rate and GDP Growth Forecasts
Source: Bloomberg.
The euro demonstrated a strong upward trend before undergoing a period of decline. According to Credit Agricole, the US dollar exchange rate already incorporates a significant amount of unfavorable news, including three acts of monetary expansion by the Fed in 2025, as anticipated by the derivatives market. Against this background, speculators are locking in profits on EURUSD long positions.
The upcoming February US employment report will provide insight into the potential impact of these developments. According to optimistic estimates, the recent layoffs of government officials have not yet been fully reflected in the report, anticipating a favorable outcome. However, the labor market is expected to continue to cool in the near future.
Daily EURUSD Trading Plan
If US Nonfarm Payrolls are close to the forecasts, traders will likely take profits on the EURUSD pair, creating an opportunity to sell the pair on the breakout of the support level of 1.0765. Conversely, robust figures can trigger elevated volatility. The drawdown will provide an opportunity to purchase the euro.
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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