The White House wants to impose tariffs on its former allies and urges them to remain loyal to the US dollar. This course of action is counterproductive, as market participants are purchasing the EURUSD pair, confirming a shift in sentiment. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US may return to universal tariffs instead of reciprocal tariffs.
- The White House’s anti-globalization stance has impacted the US dollar’s status as a preferred safe-haven currency.
- Investors are buying the euro despite the eurozone’s inflation slowdown.
- Long trades on the EURUSD pair can be opened if the quotes break through the 1.0845 level.
Weekly US Dollar Fundamental Forecast
What is the connection between the gold rally and the decline of the US dollar? The correct answer is anti-globalization. The freezing of Russia’s foreign exchange reserves caused central banks to purchase precious metals as the world split into West and East. In addition, Donald Trump’s aspirations to make America great again have contributed to the erosion of other countries’ confidence in the US dollar. The tougher the US president acts, the higher the EURUSD pair soars.
In 2025, the US dollar will no longer be regarded as a safe-haven asset. It is no longer the currency of pessimists, where investors seeking safety turn. Investors are increasingly exploring alternatives, including the Japanese yen, Swiss franc, and gold. The White House’s approach to globalization has been met with skepticism. Tariff policies enacted by the Washington administration have led to a strained relationship with its allies. Furthermore, it is important to consider the perspective of Japan, China, and other major holders of US debt, who may seek to divest from the currency due to these developments.
USD and S&P 500 Performance
Source: Trading Economics.
As a result, the direct correlation between the S&P 500, a risky asset, and the greenback, a safe-haven asset, has become stronger. While this correlation may appear counterintuitive at first, it is rooted in the notion of American exceptionalism. The share of US stocks in the portfolios of non-residents was disproportionately high. Conversely, European investors have experienced a 13% loss since the beginning of the year due to investments in the US equity market and the subsequent weakening of the US dollar.
The outflow of capital from North America to Europe directly impacts the EURUSD rate. This is particularly notable in light of Donald Trump’s protectionist policies, which are likely contributing to stagflation and a recession in the US. Notably, decreasing consumer confidence and lower job growth forecasts are clear evidence of this.
US Consumer Sentiment and Inflation Expectations
Source: Bloomberg.
Meanwhile, Goldman Sachs has raised its estimate of the scale of the Fed’s monetary expansion from two to three acts in 2025. The firm attributes this adjustment to the cooling economy, which it believes will prompt the central bank to act more decisively.
At the same time, US President Donald Trump’s actions are exerting additional pressure on the US dollar. According to the Wall Street Journal, Trump is considering universal tariffs, which are more detrimental to the global economy than reciprocal tariffs. In addition, the White House was trying to stabilize the markets, assuring investors that the anticipated tariffs on imports would not be as damaging as initially feared.
However, investors are getting worried about tariffs and selling both the S&P 500 and the US dollar.
Weekly EURUSD Trading Plan
Longs positions formed in the area of 1.0735–1.0755 can be kept open. Despite the recent flight from the US dollar and the slowdown in European inflation, market optimism persists. Furthermore, if the EURUSD pair pierces the resistance level of 1.0845, it will create an opportunity to open more long 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
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