In 1985, the Plaza Accord was signed, an agreement to devalue the US dollar to keep it from continuing to appreciate. Rumors of a similar financial conspiracy at Mar-a-Lago allow the EURUSD pair to soar. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Donald Trump may pursue a debt restructuring.
- Falling Treasury yields will weaken the US dollar.
- Rumors of an agreement and labor market weakness have pushed the euro above 1.05.
- A break of resistance at 1.0535 will allow traders to build up long positions on the EURUSD pair.
Weekly US Dollar Fundamental Forecast
It is evident that the strategy implemented by President Donald Trump, which is to prioritize the interests of the United States, has encountered challenges in its initial phase. The stock indices, which have been under US dominance for the past few years, have experienced a decline in value in the first 30 days following the inauguration, indicating a shift in momentum towards European markets. The depreciation of the EURUSD pair, which occurred from the period leading up to the presidential election to the date of Trump’s inauguration, has been followed by a significant correction. However, it is crucial for investors to adopt a comprehensive and long-term perspective.
The future may hold promising opportunities. If President Trump’s objective is to revitalize manufacturing in the US, a strategy could involve weakening the trade-weighted USD index to enhance the competitiveness of US companies. To achieve this, the president could mandate that foreign holders of US debt restructure their obligations in favor of long-term securities. Rumors of a Mar-a-Lago agreement similar to the Plaza Accord in 1985 have spurred the EURUSD pair, which has returned above 1.05.
US Dollar Indexes
Source: Bloomberg.
Substituting short-term securities with long-term ones will result in a reduction of the yields of the latter and a weakening of the US dollar against a basket of major currencies. Concurrently, the USD index may remain elevated, a development that is fully consistent with the White House’s concept of a robust US dollar.
While the concept is not without merit, its implementation appears challenging. It is conceivable that Donald Trump’s objective is to restructure debts in exchange for deferrals or tariff elimination. However, the reduction of Treasury yields will have ramifications not only for US trading partner countries but also for the Forex market. The market is overestimating the US President’s capabilities, as evidenced by the EURUSD pair’s performance.
The decline in the pair prior to the inauguration can be attributed to market expectations of substantial import duties implemented by the White House. However, once the postponements were announced and universal tariffs were replaced by reciprocal ones, investors began divesting from the US dollar. While Goldman Sachs may contend that the market underestimates the extent of Donald Trump’s protectionism, if the US President had intended to disrupt international trade, it would have done so by now.
US Jobless Claims Change
Source: Bloomberg.
Currently, the status quo remains in effect, a circumstance that, when viewed in conjunction with circulating rumors of a Margo-a-Lago agreement, rising jobless claims, and the statement made by Atlanta Fed President Raphael Bostic that a 2025 baseline scenario would include two federal funds rate cuts, has allowed the EURUSD pair to surge above 1.05.
Weekly EURUSD Trading Plan
As previously mentioned, there is still time for the major currency pair to develop a correction. The question of whether it will succeed will be clarified after it tests the resistance level of 1.0535. If the pair settles above this key level, traders will likely open long trades on the EURUSD pair, adding them to the ones formed at 1.042 and 1.046. Conversely, if the quotes rebound from the resistance level, traders will lock in profits and turn to short positions.
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.
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