Donald Trump may not have assumed that tariffs would undermine investor confidence in the US dollar, which has lost its status as a safe haven and become a risky currency. Against this backdrop, investors are divesting the US currency as the S&P 500 index declines. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The US administration believes there will be no recession.
- The Treasury has the tools to stabilize the market.
- Increased risk appetite helped the US dollar.
- Long and short trades on the EURUSD pair can be opened at 1.143 and 1.129, respectively.
Weekly US Dollar Fundamental Forecast
Donald Trump’s restructuring of the international trade system is already bearing fruit. However, it would be more precise to say that these are side effects that the White House was not prepared for. For example, the US dollar has suddenly turned from a safe haven into a risky currency, which is growing on the back of the S&P 500 rally and falling Treasury yields. Against this backdrop, EURUSD bears managed to come back into play.
The White House policy chaos has led investors to look for alternatives to the greenback. The euro joined traditional safe-haven assets such as the Japanese yen, Swiss franc, and gold. The sell-off in US Treasuries led to rumors that China had a hand in this by getting rid of its $760 billion of US securities. As a result, German bunds replaced their US counterparts as a safe haven, and the capital outflow from the US to Europe pushed the EURUSD pair to three-year highs.
US and Germany 10-Year Bond Yields
Source: Trading Economics.
Notably, there is a direct correlation between the S&P 500 index and the US dollar, suggesting that the greenback has transitioned from being a currency of pessimists to an instrument of optimists.
Correlation Between S&P 500 and EURUSD
Source: Nordea Markets.
At the same time, the US administration has demonstrated a keen understanding of the factors that cause concern for the financial markets and has taken measures to provide reassurance. The prospect of a recession is a concern, but the administration has taken measures to instill confidence in the financial markets. National Economic Council Director Kevin Hassett does not foresee a recession. The labor market is robust, and businesses have indicated an increase in orders.
Concerns about a sell-off in the US debt market have also been addressed. Treasury Secretary Scott Bessent has stated that there is no evidence indicating that non-residents, particularly those from China, were involved in the recent market fluctuations. The Treasury is well-equipped with the necessary tools to stabilize the situation.
Meanwhile, sweeping universal tariffs are not a course of action that is currently under consideration. Kevin Hassett has stressed that the US is nearing the conclusion of trade agreements with approximately a dozen countries, and the US President is consistently receptive to input from corporate leaders encountering challenges, prioritizing American interests. In light of this, the decision to eliminate import duties on smartphones, computers, memory chips, and other electronics appears to be a rational one. This reasoning aligns with Donald Trump’s decision to remove levies on the automotive industry. These measures have boosted the S&P 500 index, forcing EURUSD bulls to retreat.
Weekly EURUSD Trading Plan
In essence, the markets were offered a binary scenario. The White House’s decision to repeal tariffs led to an increase in stock values, a decline in Treasury yields, and a strengthening of the US dollar. Alternatively, if the tariffs are maintained, the major currency pair may continue to rally. In light of these potential outcomes, it is better to consider opening long positions on the EURUSD pair if the resistance level of 1.143 is breached or initiating short-term selling if the pair pierces the support level of 1.129.
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
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
Feed from Litefinance.com