As the US economy continues to slow down and the likelihood of a Fed monetary expansion cycle shifts from September to June, the US dollar is experiencing some uncertainty. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The US is considering tariffs on copper.
- US consumer confidence has collapsed.
- The reduced pace of ECB monetary expansion will support the euro.
- Long trades can be opened if the EURUSD pair breaches the resistance levels of 1.05 and 1.0535.
Weekly US Dollar Fundamental Forecast
The Trump trade retreat, indications of a cooling US economy, Germany’s plans to boost the flagging European economy, and speculation about the Mar-a-Lago Accord suggest a potential downturn for the US dollar. The EURUSD rate has returned above 1.05, though a resistance level of 1.0535 remains intact.
Donald Trump’s honeymoon with US consumers seems to be coming to an end. According to the Conference Board report, consumer confidence has experienced the most significant decline in three years. This decline, coupled with reports from the University of Michigan, dismal retail sales data, and pessimism surrounding Walmart, indicates a cooling of the US economy. This, in turn, has led to a shift in the expected timing of the Federal Reserve’s monetary expansion from September to June and a weakening of the US dollar.
US Dollar Performance
Source: Bloomberg.
However, the inflation-adjusted USD index remains high, reducing the competitiveness of US exporters and giving rise to rumors surrounding the Mar-a-Lago Accord. It is unlikely to resemble the Plaza Accord of 1985, in which a number of countries agreed to coordinate currency intervention. However, it is possible to get their trading partners to buy long-term Treasuries in exchange for promises not to impose US tariffs.
Investors are evidently wary of the Trump trade, reducing their long trades on the US dollar. Even new tariff threats are not helping, as the White House has indicated plans to impose duties on copper imports. In 2024, the United States consumed 1.6 million tons of this metal, with 850,000 tons mined domestically and the remainder imported from Chile (38%), Canada (28%), Mexico (8%), and other countries.
US Copper Imports by Country
Source: Bloomberg.
Meanwhile, Europe remains optimistic about the new strong leader, Friedrich Merz, who is capable of rescuing the German economy and confronting Donald Trump. The EURUSD pair is supported by the statement from Bundesbank Governor Joachim Nagel that as rates approach the neutral level, the ECB needs to slow the pace of monetary easing.
The derivatives market expects the deposit rate to fall from the current 2.75% to 2% in 2025. Should the cuts be less frequent or the process longer than anticipated, the major currency pair is expected to surge. However, expectations that the ECB will take additional steps toward monetary expansion in early March are likely to put pressure on the single currency.
Weekly EURUSD Trading Plan
The current market conditions are favorable for those traders who initiated long positions on the EURUSD at 1.042, as they may consider opening more positions if the quotes pierce 1.0535. For those who were unable to do so, it is better to wait for the pair to test the resistance levels of 1.05 and 1.0535 to open long trades and the support level of 1.0445 to consider selling.
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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