Both currencies in the major pair are facing challenges. The US dollar is under pressure from falling Treasury yields and a potential economic slowdown. The euro is struggling amid the crisis in France and high oil prices. Let’s discuss these factors and make a trading plan for EUR/USD.
The article covers the following subjects:
Major Takeaways
- Falling Treasury yields are weighing on the US dollar.
- Investors are concerned about a slowdown in the US economy.
- Europe is experiencing capital outflows due to the crisis in France.
- A breakout of the 1.118–1.126 range remains a trading opportunity for EUR/USD.
Weekly Fundamental Forecast for Dollar
Everything seems calm on the surface, but tensions are running high beneath it. The consolidation of EUR/USD seems natural after the pair’s sharp decline from August to October. However, the formation of the 1.118–1.126 trading range is the result of turbulent events. These include French bond yields surging to their highest levels since 2002, a plunge in US stock indices, and Brent crude oil climbing above $114 per barrel.
Revolutions often occur when those in power can no longer govern, and the people refuse to accept the status quo. An explosion usually follows. This time, however, neither the US dollar nor the euro can gain the upper hand. The greenback is struggling against falling Treasury yields. A sell-off in technology stocks pushed 10-year Treasury yields below the psychologically important 5% mark.
Meanwhile, investors are gradually questioning the strength of the US economy. Perhaps it is not as resilient as widely believed if it cannot withstand high interest rates. If so, the Fed will be in no hurry to resume its monetary tightening cycle, putting further pressure on the US dollar.
Brent Crude Oil Prices in Spot and Futures Markets
Source: Wall Street Journal
Falling Treasury yields are prompting investors to reassess the relationship between oil and the greenback. Previously, the US dollar benefited from its safe-haven status and the fact that the United States is a net energy exporter. Now, however, investors are betting that the conflict in the Middle East will be prolonged. The narrowing spread between spot and futures prices points to this expectation.
If this scenario plays out, high oil prices will slow the US economy, especially if investments in artificial intelligence fail to deliver the expected returns. The loss of American exceptionalism would be another blow to EUR/USD bears.
Bond Yield Performance
Source: Wall Street Journal
Meanwhile, the euro is also struggling. Investors are selling French assets amid expectations that Moody’s will downgrade the country’s credit rating. Foreign investors hold 55% of French government debt, compared with 31% in the US and 13% in Japan. Attractive bond yields in other regions are encouraging capital repatriation, putting pressure on EUR/USD and EUR/JPY.
It is also worth remembering that high oil prices pose an even greater threat to the eurozone economy than to the US economy. At the same time, investors are wondering who will pay for the unrest in France. Could it be Germany, which has benefited the most from the introduction of the euro?
Weekly Trading Plan for EUR/USD
Both currencies are therefore facing serious challenges, making the consolidation of EUR/USD within the 1.118–1.126 range understandable. Perhaps it is time to trade a breakout of this range: buy if the pair breaks above its upper boundary, or sell if it falls below the lower one.
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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