
Donald Trump is not ruling out a downturn in the US economy, which is scaring the stock market and US dollar bulls. American exceptionalism is a thing of the past, which means it is time to buy the EURUSD pair. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Germany’s Greens vowed to block the fiscal brake reform.
- The likelihood of a recession in the US economy is increasing.
- The market anticipates the resumption of the Fed cycle in May.
- Long and short trades can be considered at 1.0875 and 1.0805, respectively.
Weekly US Dollar Fundamental Forecast
In the US, the Democrats were set for a soft landing of the US economy amid a gradual slowdown in inflation. Today, the Republicans are making a course correction that could lead to a recession. The recent comments made by Donald Trump regarding a transition period and his apparent disregard for the stock market have caused significant concern among investors, leading to a renewed focus on the EURUSD pair, with the quotes flirting with the 1.085 level after a deep plunge in the European session.
This drawdown was due to a firm “no” from the Greens in Germany to Friedrich Merz’s initiative to relax the debt brake to revamp military spending and create a €500 billion special fund for infrastructure. For this initiative to be implemented, a two-thirds vote in the former parliament is required. The new parliament will begin its work on March 25, and it will not be possible to implement the ideas of fiscal profligacy there because the Left and the Alternative for Germany, which have strengthened their positions, are strongly opposed.
The deadline is tight, and if Friedrich Merz fails to push through his ambitious plan, the EURUSD pair will face a sell-off based on the facts. The quotes may decline at a pace no less rapid than buying on rumors in March when the major currency pair had its best weekly performance since 2009.
The White House’s recent shift in policy, which includes measures that could potentially lead to a recession and heightened inflation, has contributed to this ongoing strength. Consumers are uncertain how to respond to this trend. According to the anchored inflation expectations from the Federal Reserve Bank of New York, a GDP downturn could potentially temper price increases.
US Inflation Rate Expectations
Source: Bloomberg.
Meanwhile, major financial institutions have revised their forecasts for the likelihood of a recession in the United States. Goldman Sachs has increased its probability from 15% to 20%, Yardeni Research has raised it from 20% to 35%, and JP Morgan has revised its probability from 30% to 40%. Morgan Stanley has reduced its US GDP forecast for 2025 to 1.5% and for 2026 to 1.2%.
The future of the United States’ economic landscape is uncertain, and while the country’s exceptionalism may have been compromised, the full impact of recent developments remains to be seen. The recent decline in US stock indices following President Trump’s remarks on the transition period from 2022 has not bolstered the greenback’s status as a safe-haven currency. When the US economy appears to be entering a recessionary phase, investors often seek to preserve their wealth by allocating funds to alternative assets.
Consequently, the US dollar is currently weak, as evidenced by the shift in the expected timing of the Fed’s monetary expansion cycle from July to May. The strength of the euro hinges on Friedrich Merz’s ability to negotiate with the Greens. A successful outcome would result in a significant strengthening of the EURUSD rate, pushing the quotes to 1.1.
Weekly EURUSD Trading Plan
Meanwhile, several wild cards could exert pressure on the euro, including the ongoing trade tensions between the US and the European Union, as well as the armed conflict in Ukraine. In light of these developments, the prevailing uncertainty in the Forex market allows traders to place pending orders to buy the EURUSD pair at 1.0875 and to sell it at 1.0805.
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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