Despite accounting for 26% of global GDP, the U.S. makes up only 13% of global imports. Other countries can redirect their trade. What does this mean for America and the dollar? Let’s find that out and make a trading plan for EUR/USD.
Major Takeaways
- Repeat elections in Germany would be disastrous for the euro.
- Countries are actively signing trade agreements outside the U.S.
- Markets are scaling back expectations for Fed monetary expansion in 2025.
- A false breakout above $1.138 and a drop below $1.1325 will be reasons to sell EUR/USD.
Weekly Fundamental Forecast for Dollar
The longer EUR/USD consolidates in the $1.128–$1.138 range, the more doubts arise about resuming its uptrend. Just as White House policies undermined confidence in the U.S. dollar, Friedrich Merz’s failure to become Germany’s new chancellor could push investors to pull capital from Europe. Sure, the CDU leader will likely try again, but what if Germany heads to new elections?
Faith that Germany can reclaim its former glory and rival the U.S. fueled capital flows from the New World to the Old, driving EUR/USD’s rally. European stock indices outperformed others as competitors lost American exceptionalism.
Stock Index Dynamics
Source: Bloomberg.
A failed Bundestag vote could change the game. The euro held up, hoping Merz will succeed on his second attempt. But what if he doesn’t? The Alternative for Germany party is pushing for new elections, and if they happen, it would be catastrophic for EUR/USD.
Some might wonder how the main currency pair rose amid a slowing global economy. The eurozone is export-driven, and the euro is a pro-cyclical currency, so trade restructuring is clearly negative for it. Yet, the U.S. accounts for 26% of global GDP but only 13% of global imports. Other countries can shift their exports away from the U.S. market — and they’re doing just that. New trade agreements are popping up like mushrooms after rain.
As a result, the U.S. risks isolation. That’s why the USD index has dropped 7% since the year began, and the dollar is losing to all but two of the 31 major currencies tracked by Bloomberg. Donald Trump claims trade wars are easy to win, but he seems unable to foresee all their consequences.
The Fed could come to the greenback’s rescue. Markets are increasingly convinced that White House criticism is just noise to Jerome Powell. The central bank plans to hold rates steady amid policy uncertainty and a strong labor market. If nothing bad happens to the U.S. by June, the pause could extend to September.
Market Expectations for Fed Rate Cuts
Source: Bloomberg.
Weekly Trading Plan for EUR/USD
Traders are gradually trimming expectations for 2025 monetary expansion from four to two or three moves, pushing timelines to 2026. They’ll closely watch Jerome Powell’s comments. Only a breakout above $1.138 would signal a return to the uptrend. However, a false breakout followed by EUR/USD‘s drop below $1.1325 could justify selling.
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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