The US dollar needs to be devalued by 30–35% to balance US foreign trade. However, this would likely result in inflation exceeding 4%, which would necessitate the Fed to maintain elevated interest rates. However, this strategy is not aligned with the US administration’s strategic plans. Let’s discuss this topic and develop a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- Donald Trump has resumed criticism of the Fed chair.
- The US wants to devalue the US dollar by 30–35%.
- The labor market may trigger a rate cut in July.
- Long trades on the EURUSD pair can be considered on a breakout of 1.18.
Weekly US Dollar Fundamental Forecast
The markets interpreted Jerome Powell’s statement that he would not rule out a rate cut at any FOMC meeting as a sign of openness to such a possibility. The US employment data for June could have a significant impact on the Fed’s decision to resume its monetary expansion cycle in July. The chances of a rate cut are currently estimated at 25%. If they increase to 50%, the EURUSD pair will surge to 1.2.
The US dollar attempted to regain ground, but ultimately retreated due to the first decline in private sector employment since March 2023, as reported by ADP. The figure decreased by 33,000 in June, and May’s figures were revised downward. The labor market is beginning to experience the impact of Donald Trump’s tariffs. Should the non-farm payrolls report show a similar trend, the EURUSD pair is likely to experience a significant surge.
United States ADP Employment Change
Source: Bloomberg.
The employment outlook indicates a projected increase of 106,000 jobs, marking the weakest performance in four months. The slowdown in the labor market is a reliable indicator of an economic downturn. It appears that it is unable to withstand high interest rates. Against this backdrop, Donald Trump has once again criticized Jerome Powell. The president has called for “Mr. Too Late” to resign in light of the Federal Housing Finance Agency’s request for Congress to investigate Jerome Powell for “malfeasance.”
US Unemployment and Nonfarm Payrolls
Source: Bloomberg.
The US dollar lacks strength due to sluggish employment statistics and renewed threats against the Fed chief. Although Deutsche Bank sees no signs of non-residents fleeing the US, the company believes that this is not necessary for the USD index to continue its decline. If foreigners were to refrain from purchasing US stocks and bonds, it would result in a depreciation of the greenback.
At the same time, Deutsche Bank believes that a 30–35% devaluation of the dollar is necessary to stabilize the US current account. This is precisely what the US administration is aiming for. However, according to Morgan Stanley, a 10% decrease in the USD index contributes an additional 0.5 percentage points to US inflation.
Meanwhile, ING suggests that consumer prices could reach 4% in August or September, potentially affecting the Fed’s strategy to reduce interest rates. As a result, the EURUSD pair is expected to correct towards 1.13–1.15.
The Fed is hindering the US administration’s objectives to address the trade deficit. In this connection, Jerome Powell will likely become a scapegoat. However, all decisions made by the Federal Reserve will be based on data, not on the preferences of the US president. In this connection, the US employment report is of fundamental importance.
Weekly EURUSD Trading Plan
Against this backdrop, it would be better to wait for the US statistics. A more aggressive strategy involves opening long positions on the EURUSD pair upon a breakout of 1.18, with positions maintained if the pair consolidates above 1.184.
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