US tariffs may reach an unprecedented level. However, if US allies decide to divest from Treasuries, the US dollar will be hit severely. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- Risks of recession in the US economy are rising.
- The White House may impose record tariffs.
- Sales of Treasuries will slow down the US GDP.
- Long trades on the EURUSD pair can be opened if the quotes rise above 1.0845.
Daily US Dollar Fundamental Forecast
Clarification on the matter of tariffs is essential to ensure informed decision-making and mitigate potential economic impacts. According to research by the IMF, protracted uncertainty can exert a negative impact on the economy. The recent announcement of reciprocal import duties on “Liberation Day” in America prompts the question of whether it will positively contribute to the US GDP. Recession risks are increasing, putting pressure on the US dollar and boosting the EURUSD pair.
Goldman Sachs has raised the odds of the US economy contracting in the next 12 months from 20% to 35%, citing the prospect of a trade war and falling consumer and business confidence. JP Morgan and Moody’s Analytics had previously issued similar estimates. According to their analysis, there is a 40% likelihood of a recession largely due to the considerable uncertainty surrounding the White House’s imminent announcement of reciprocal tariffs, which has had a detrimental effect on planning processes. Average duties could rise to unprecedented levels, surpassing the current 2.2% benchmark. This creates a sense of urgency and concern among businesses and consumers.
Average US Tariff Rate
Source: Bloomberg.
Donald Trump’s strategy for achieving two contradictory objectives involves the implementation of duties on imports. He aims to increase the revenue part of the US budget in order to somehow compensate for the prolongation of the tax grace period and also to force other countries to reduce their tariffs. However, if the April 2 tariffs are reduced or eliminated in the future, their value in replenishing the Treasury is called into question.
US allies may not do what the White House wants and reduce their holdings of US Treasuries in retaliation. Trump aims to equalize foreign trade balances, but those countries with substantial surpluses with the United States tend to use that surplus to buy US Treasury bonds.
Over the past decade, foreign holdings of US Treasuries have increased from $6.1 trillion to $8.5 trillion. Their share has increased to 30%, with the largest holders being Japan with its $1.06 trillion, China with $759 billion, Luxembourg on behalf of European investment funds with $424 billion, and Canada with $379 billion.
If these nations were to cease their current purchasing patterns or begin to divest US bonds, it would likely spur yields, creating a significant headwind for the US economy. Notably, Goldman Sachs anticipates not one but three acts of monetary expansion by the Fed in 2025. This scenario could exert downward pressure on the US dollar.
US Dollar Performance
Source: Bloomberg.
On the other hand, Wells Fargo anticipates a temporary decline in the USD index. The firm anticipates a strengthening of the US dollar by 1.5–11%, depending on the response of other nations to US tariffs.
Daily EURUSD Trading Plan
The upcoming America’s “Liberation Day” will likely trigger increased volatility in the market. The EURUSD pair is likely to experience significant fluctuations, presenting both risks and opportunities for traders. Long positions can be considered if the pair breaks through the resistance level of 1.0845. On the contrary, if the quotes plunge below 1.078, short positions can be opened.
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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