Mexico has agreed to impose symmetrical US import duties against China, which may appease Donald Trump and extend the delay. How will this affect EURUSD quotes? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US demands Canada to implement tariffs against China.
- The US Treasury Department is committed to reducing inflation to 2%.
- The markets are not concerned about accelerating inflation but are fearing a slowdown in US GDP.
- Long trades can be opened if the EURUSD pair surges above 1.042.
Weekly US Dollar Fundamental Forecast
As a rule, the initial perception may be misleading. According to the media, the primary factors contributing to the euro’s growth in early spring, which in theory should boost GDP, are the EU countries’ intention to take the lead in resolving the conflict in Ukraine and increasing military spending. However, the elevated degree of geopolitical risks, which puts pressure on the EURUSD pair rather than supports it, is still in place. In addition, the connection between Kiev and Washington has become strained.
The EURUSD pair’s trajectory will depend on the extent to which Donald Trump implements tariffs. Should countries make concessions, the White House grants postponements, exerting downward pressure on the US dollar. In this regard, investors welcomed Mexico’s agreement to impose similar US levies on imports from China, as announced by Scott Bessent, as a potential reprieve from Mexico’s scheduled early March 25% duties on imports.
Treasury Secretary Scott Bessent stressed that Canada would benefit from following Mexico’s example by establishing a North American protective measure against China. He has expressed confidence in the US achieving a 2% inflation rate, attributing this prediction to reduced government spending and lower energy prices, citing falling Treasury yields and mortgage rates.
In fact, the personal consumption expenditure index experienced a modest decline from 2.6% to 2.5% in January. Of greater significance are the peaks observed in the 3-month core PCE index at 2.2% and the 6-month PCE index at 2.3%. The main disinflation deterrent is associated with the beginning of 2024, and once it disappears, prices are likely to return to 2%.
US Inflation Rate
Source: Wall Street Journal.
This, coupled with a series of weak reports on the US economy, allowed the derivatives market to amplify the implied scope of the Fed’s monetary expansion to 70 basis points. This is comparable to 85 bps for the ECB deposit rate, and in early 2025, the difference reached as high as 75 bps. Against this backdrop, could the EURUSD parity be set aside?
The market narrative has evolved. Previously, investors anticipated that tariffs would accelerate inflation, compelling the Fed to maintain a long pause or even tighten the policy. However, the current narrative suggests a shift in perspective. Market concerns have turned toward the potential consequences of aggressive protectionism on the US economy, leading to speculation that the Fed may resort to substantial monetary stimulus, which could weaken the greenback.
Weekly EURUSD Trading Plan
Therefore, the expectation of new tariff postponements against Mexico and Canada and an increase in the scale of the Federal Reserve’s monetary expansion have boosted the EURUSD pair. If the resistance level of 1.042 is broken through, it could trigger a rally and provide an opportunity to initiate long positions. However, if the pair fails to settle above this level, it would be better to keep short trades open.
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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