Everything was going perfectly for the Fed and EURUSD bulls before the attempted assassination of Donald Trump. The Republican’s ratings have risen, which can help the US dollar recover. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Highlights and key points
- Trump’s assassination attempt has boosted his approval rating.
- The Republican’s victory will slow down the Fed and strengthen the US dollar.
- The Fed’s dovish rhetoric is helping the EURUSD pair.
- The pair is bracing for increased volatility.
- The euro may rise above 1.1 or reverse at 1.0935.
Weekly US dollar fundamental forecast
Do EURUSD bulls have time? While they wonder why the Fed would wait until September, the attempted assassination of Donald Trump is a game changer. Politics was expected to take center stage in the fall or late summer at best. However, the shots fired at the Republican and the triumphant fist raised by the 45th President of the United States may revive the US Dollar much sooner.
Donald Trump is in great political shape. Not many 78-year-old men could come out of a situation so spectacularly wounded and bleeding on the face. The Republican’s ratings are rising along with the greenback and US Treasury yields. The market reaction is similar to what happened after the first presidential debate.
Ratings of US presidential candidates
Source: Bloomberg.
Donald Trump’s victory in November and the accompanying Republican sweep have a pro-inflationary bias. New tariffs and renewed trade wars will disrupt supply chains and accelerate inflation. Additional fiscal stimulus, which a Republican Congress could quickly approve, will also accelerate inflation. A new round of consumer price increases will prevent the Fed from cutting the federal funds rate, raising Treasury yields, and allowing the US dollar to recover.
US Treasury yield and US dollar rate
Source: Bloomberg.
In particular, everything was going so well for the Fed! A cooling labor market and inflation slowing to its lowest level in three years opened the door for the start of the monetary easing cycle. The futures market is pricing in a 92% probability that this will happen in September. Investors are asking, why wait so long? The situation is reminiscent of late 2023 when the Fed’s dovish reversal with three hikes projected in 2024 allowed markets to speculate on six hikes and drowned the US dollar.
The EURUSD soared to 1,091. In the coming weeks, FOMC officials will prepare the markets for rate cuts, and their dovish rhetoric will spur buying of the major currency pairs. For example, Chicago Fed President Austan Goolsbee stated that the Fed had waited too long for real interest rates to rise so high amid slowing inflation. The economy does not need this, so it is high time to start normalizing monetary policy.
Weekly EURUSD trading plan
If the ECB fails to signal a rate cut in September at its July meeting, and US retail sales disappoint, the EURUSD pair is at risk of soaring to 1.1. Only the Trump factor can prevent the pair’s rally. The main currency pair is waiting for increased volatility, and consolidation risks are growing, so reaching the second of the two previously set targets at 1.09 and 1.0935 will allow traders to take profits on their long trades.
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. 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 2004/39/EC.
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