Before the conflict in the Middle East, the US dollar was falling as the global economy picked up speed. However, in March, the US currency rose at its fastest pace since September 2022 due to a slowdown in global GDP. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The Fed intends to keep rates low for an extended period.
- Oil prices could rise to $150 per barrel.
- The dollar is benefiting from the global economy’s weakness.
- Short positions on the EUR/USD pair can be opened below 1.144.
Weekly US Dollar Fundamental Forecast
Man proposes, God disposes. This is how Jerome Powell explained his reluctance to ever use quantitative easing during his tenure as Fed chair. In 2020, due to the pandemic, he was forced to do so, as ultra-low interest rates proved insufficient to support the economy. However, this phrase also applies to Donald Trump. He planned to end the military operation in Iran within 5–6 weeks, but the conflict is far from over. As a result, the US dollar is seeing its best monthly performance since September 2022.
US Dollar Monthly Performance
Source: Bloomberg.
The greenback has rallied as a safe-haven asset amid weakening global economic growth expectations. Indeed, the OECD had planned to raise its global GDP forecast but did not do so due to the conflict in the Middle East. The slowdown in global economic growth is hurting export-oriented regions, including the eurozone and Japan, especially since they depend on energy supplies.
As a result, the euro is poised to post its worst quarterly performance since 2024. Even expectations of three acts of monetary tightening by the ECB are not helping. As Jerome Powell rightly said, energy disruptions are typically short-lived, and monetary policy works too slowly to counter them in real time. The best the central bank can do is wait.
While the futures market previously priced in a 25% probability of a federal funds rate hike in 2026, it has now reduced those odds to 4%. The main focus is on keeping the rate at 3.75%. Moreover, the decline in US Treasury yields signals a shift in investors’ outlook. Previously, they were worried about stagflation; now they fear a recession.
How this will ultimately play out for the US economy will depend on the conflict in the Middle East. For now, the situation looks more like an escalation. Iran attacked a Kuwaiti tanker anchored in the port of Dubai and is actively pushing the Houthis to join the conflict. If they block the Bab el-Mandeb Strait, Saudi Arabia will have to cut oil production, and Brent crude will rise to $150 per barrel, according to a Societe Generale forecast.
Chances of US Ground Operation in Iran
Source: Wall Street Journal.
Meanwhile, Polymarket gives a 70% probability of a US ground invasion of Iran in April, and Donald Trump is threatening to bomb energy infrastructure again.
On the other hand, the Wall Street Journal reports that the US president wants to end the conflict within 5–6 weeks, even if the Strait of Hormuz remains closed.
Weekly EURUSD Trading Plan
Only time will tell how the situation unfolds. For now, if the EUR/USD pair breaks through the 1.144 support level, short positions can be considered.
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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