The fundamental market principle “Don’t Fight the Fed” has been disregarded and abandoned. Market participants do not pay close attention to the FOMC meeting minutes. Instead, they seek guidance from the White House. What will be the outcome for the EURUSD pair? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Fed will not rush to resume the cycle.
- The market is overly optimistic about interest rates.
- The White House affects the US dollar rate more than the Fed.
- Long trades on the EURUSD pair can be opened once the price breaches the resistance level of 1.046.
Weekly US Dollar Fundamental Forecast
Since Donald Trump’s inauguration, financial markets have been experiencing significant volatility, which has led to a period of consolidation in the EURUSD pair. Market participants have expressed optimism regarding the potential impact of tariffs, viewing the White House’s threats as a part of a negotiating strategy. However, it is more probable that import duties will witness a decline rather than an increase. As a result, the recent upward movement in the major currency pair can be seen as a correction rather than the onset of a trend reversal. This perspective is shared by the majority of Forex analysts, including TD Securities. However, there are some dissenting opinions.
Bank of America argues that all the bearish factors are already reflected in EURUSD quotes, and increased long positions on the US dollar make the major currency pair vulnerable to a rapid rally if tariffs are affected by unforeseen events. In this regard, Donald Trump’s statement that a trade deal with China remains a possibility led to the euro’s stabilization after a two-day decline against the greenback. The EU’s intention to consider lowering duties on car imports from the US in order to avoid a trade war also contributed to this stabilization.
The question remains: who is correct: EURUSD bears suggesting that excessive market optimism and falling volatility could trigger turbulence in the event of new outings by the US President, or bulls who refer to the overbought US dollar?
US Dollar 1-Month Implied Volatility
Source: Bloomberg.
The market is excessively focused on White House policies and has disregarded the Fed. The EURUSD pair exhibited no reaction to the minutes of the previous FOMC meeting. Given the economy’s proximity to full employment, officials seek disinflationary progress to restart the monetary expansion cycle. The central bank has identified robust consumer demand, shifts in trade and immigration policies, and accelerating prices as potential risks.
According to Atlanta Fed President Raphael Bostic, the Fed will need a few more months to determine the appropriate monetary policy. Currently, the central bank is confident in the pause, and Vice President Philip Jefferson has stated that the Fed will not rush into any decisions. In the context of three more ECB deposit rate cuts predicted by Bloomberg experts and the derivatives market in 2025, this should weaken the EURUSD. However, the major currency pair has new influential factors to consider.
The markets are closely monitoring US President Trump’s actions and statements for any indication of potential economic policy changes that could impact the US dollar’s value. Deferrals or blacklisting due to the President’s policies are seen as reasons to sell the US dollar, while his threats are viewed as reasons to buy the US currency. As a result, the EURUSD pair is excessively volatile, fluctuating within a narrow range of 1.025 to 1.05. The major currency pair’s trajectory will depend on the range breakout.
Weekly EURUSD Trading Plan
Traders who employ aggressive strategies may consider opening long trades on a breakout of the resistance level at 1.046 or initiate short trades if the EURUSD pair declines below the support level of 1.04.
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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