The Supreme Court’s ruling on the illegality of tariffs has raised questions about how it will affect the US dollar. Initially, the currency fell. However, markets tend to react first and think later. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The Supreme Court overturned US tariffs.
- Trump introduced new 15% duties.
- The US economy is slowing down.
- Short trades on the EUR/USD pair can be opened as long as the price remains below 1.1835.
Weekly US Dollar Fundamental Forecast
The decision to cancel tariffs is the biggest threat in US history and will literally destroy the United States. That’s what Donald Trump said right before the Supreme Court’s verdict. When it came out, his words seemed like a prophecy – the US dollar really did crash. However, the US leader was not at all upset by the judges’ decision that the tariffs were illegal. He immediately introduced new ones and said that even more money could be raised. Does this mean that EUR/USD bulls do not have much time to enjoy the uptrend?
The verdict was passed by six votes to three. However, the Supreme Court did not specify what to do next. This allowed Donald Trump to immediately introduce 10% tariffs, which turned into 15% tariffs a few hours later. This time, Section 122 of the Trade Act was used as the basis. It allows tariffs of up to 15% to be imposed for 150 days. After that, the US government can refer to Section 301 to justify longer tariffs. It all has to be backed up by lengthy investigations.
US GDP Growth
Source: Bloomberg.
Investors believed that turmoil was the main driver behind the US dollar’s decline in response to the Supreme Court’s verdict. They argued that the uncertainty surrounding the US administration’s policies was hurting the greenback more than helping it. However, delving deeper, the reason may lie in problems with the refund of previously paid duties. This will require lower court decisions and will take months. It is known that about 90% of the tariff burden falls on American companies and households. Together with the government shutdown, they were the main contributors to the slowdown in GDP from 4.4% to 1.4% in the fourth quarter.
The return of tariffs can be seen as a fiscal stimulus. The longer it takes to get it, the worse it is for the US economy. Judging by the slowdown in US Purchasing Managers’ Indexes and the acceleration of the European PMIs in February, the difference in economic growth between the United States and the eurozone is narrowing. This circumstance, coupled with the divergence in monetary policy between the ECB and the Fed, underlies the upward trend in the EUR/USD pair. Perhaps it is time for it to recover?
EU PMIs
Source: Bloomberg.
Germany is once again becoming the driving force behind the European economy, where purchasing managers’ indexes in the manufacturing sector have entered growth territory for the first time in three years, thanks to fiscal stimulus measures from Friedrich Merz and increased defense spending.
Uncertainty over tariffs is indeed detrimental to the US dollar, but it may also prevent the Fed from resuming its cycle of monetary expansion.
Weekly EURUSD Trading Plan
Meanwhile, investors are trying to understand what is happening, which suggests that the 1.1835 level is a line in the sand. As long as EUR/USD quotes are trading below it, short positions can be considered. If the price breaks through this key level, long positions can be opened.
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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