Following the Fed, the ECB risks losing its independence. The right wing in France wants the European Central Bank to buy French bonds. If they come to power in 2027, the euro’s credibility will be undermined. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Speculation about a change in ECB leadership is weighing on the euro.
- The hawkish surprise in the FOMC minutes helped the dollar.
- The Fed may raise interest rates.
- Short positions on the EUR/USD pair opened at 1.1845 can be increased.
Weekly Euro Fundamental Forecast
Donald Trump’s attacks on the Fed have set a precedent for the loss of central bank independence. While Sanae Takaichi and the Bank of Japan have found common ground, the French right wing, if it wins the 2027 presidential election, will put the ECB’s independence at risk. In this regard, Christine Lagarde’s early resignation is more likely to benefit the euro, although rumors of this have triggered a decline in EUR/USD quotes.
According to the Financial Times, Christine Lagarde wants to leave her post earlier than planned to help Emmanuel Macron and Friedrich Merz appoint a new leader before the French presidential election. The National Rally’s ratings are sky-high. If Donald Trump is demanding that the Fed cut rates, then the right wing wants the ECB to buy struggling French bonds. Their handpicked candidate would jeopardize the central bank’s independence, thereby damaging the euro’s credibility.
EUR/USD Performance and France-Germany Bond Yield Spread
Source: Trading View.
In fact, a single person is not enough. As the example of the US shows, controlling the executive branch over the central bank requires much more than just having your representative at the helm. Even if Congress approves Kevin Warsh as Fed chair, there is a growing army of hawks within the FOMC.
According to the January minutes of the Committee meeting, several members demanded bilateral wording on inflation. If inflation does not slow down, the Fed should consider a rate hike. Such rhetoric came as a revelation to investors. Coupled with the reluctance of durable goods orders to fall as deeply as Bloomberg experts had expected, it allowed EUR/USD bears to push the pair down.
US Core Capital and Durable Goods Orders
Source: Bloomberg.
Moreover, the US dollar appears to have little to fear from the “Sell America” strategy. In 2025, non-residents increased their purchases of US securities from $1.18 trillion to $1.55 trillion. Of this amount, $658.5 billion was related to stocks and $442.7 billion to Treasury bills and bonds.
Part of these flows was hedged by selling the US dollar, which drove the decline in the USD index in 2025. According to JP Morgan, foreign investors will increase their currency risk hedging. However, why should they do so if the risks of the Fed losing its independence are not as great as rumours suggest? Moreover, the Fed’s prolonged pause in the monetary expansion cycle favours EUR/USD bears.
Donald Trump jokingly said that he would probably have to file a lawsuit against the second Fed chairman in a row if Kevin Warsh does not lower interest rates. As we know, every joke has a grain of truth in it.
Weekly EURUSD Trading Plan
Strong US GDP data for the fourth quarter will give EUR/USD bears cause for optimism and allow them to increase their short positions formed at 1.1845.
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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