EURUSD bears will use disappointing economic data for the US dollar to initiate more short trades. In the current economic climate, the so-called Trump trade is a more significant factor than others. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Highlights and key points
- Protectionism and high interest rates will slow the global economy.
- Under Donald Trump, US government debt will rise to 116% from 99% of GDP.
- 10-year Treasury yields rallying to 5% will support the US dollar.
- The EURUSD pair may consolidate in the range of 1.0745-1.0865.
Weekly US dollar fundamental forecast
In 2016, Donald Trump was regarded as a controversial figure. By 2024, his actions were viewed with a greater degree of seriousness. Given the Republican Party’s enthusiastic fulfillment of campaign promises in the previous administration, investors are well aware of what to expect from Trump’s second term. The potential for extreme protectionism, a significant demographic shift and a rise in Treasury issuance to finance an unorthodox fiscal policy. These factors place significant constraints on EURUSD bulls. The pair’s attempts to achieve growth are rapidly negated by sell-offs.
There is a high level of concern that Donald Trump’s return to the White House will result in a global increase in trade barriers and a prolonged period of elevated interest rates. This could have a particularly adverse impact on countries with weaker economies. It is possible that a 60% duty on all Chinese imports could have a more detrimental impact than a 10% tariff on imports from other countries. When the US implements restrictions on the import of goods, Beijing will seek alternative markets for these products. As a result, $420 billion of exports to the United States will be redirected to other markets. Initially, this will be to Europe, where a new trade war is likely to emerge.
The market is already factoring in these changes. Consequently, a 7% drop in the basket of European stocks exposed to US tariffs was to be expected. The basket has lost 2% since the beginning of the year, while the broad stock index is up 8%.
EuroStoxx 600 and tariff-exposed stocks basket performance
Source: Financial Times.
All factors appear to be aligned in Donald Trump’s favor. Even the hurricanes are working in his favor. The most destructive hurricane since Katrina was Hurricane Helen, followed by Hurricane Milton. The impact of natural disasters and industrial action could distort the figures for US employment in October. Analysts at Reuters anticipate a modest increase of 125K, following an impressive 254K in September. However, the final figure is likely to be significantly lower. Republicans will undoubtedly leverage the data to illustrate the perceived fragility of the Joe Biden administration’s economic policies.
The market shoots first and asks questions later. Therefore, in the event of a non-farm payrolls figure of less than 100K, it is likely that traders will purchase the EURUSD pair. In particular, ahead of the crucial release of US employment data, European inflation figures are scheduled for publication. CPI is projected to rise to 1.9% from 1.7%.
However, it is unlikely that EURUSD’s short-term gains will alter the broader trend. Donald Trump’s policies could potentially drive the 10-year Treasury yield above 5%, thereby strengthening the US dollar.
10-year US Treasury bond yield
Source: Bloomberg.
Bloomberg estimates that the Republican fiscal stimulus will increase the national debt-to-GDP ratio to 116% from 99%. Under Kamala Harris, the figure is unlikely to exceed 109%.
Weekly EURUSD trading plan
Should economic data prove unfavorable for the US dollar, the EURUSD pair is likely to experience a sell-off. At present, there is a high probability of consolidation within the range of 1.0745-1.0865. It would be prudent to focus on intraday trading.
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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