Instead of the "sell America" strategy that dominated the markets at the beginning of the year, "hedge America" has become the new trend. As US stock indices rise, non-residents are buying stocks and selling the US dollar. Let's discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The US labor market has shown strong data.
- The ECB is concerned about the strengthening of the euro.
- The political crisis in France is intensifying.
- Long positions on the EURUSD pair can be opened above 1.1825.
Weekly US Dollar Fundamental Forecast
The US job market has shown positive results following the Fed's announcement regarding a shift in focus toward the weakening labor market. The number of unemployment claims fell at the fastest rate in nearly three years. Did the central bank make an error in judgment, or has the new BLS head started releasing statistics that align with Donald Trump's agenda?
US Unemployment Claims
Source: Bloomberg.
If the market is not as weak as one might assume based on the slowdown in average monthly employment to 29,000 in June-August, what is the point of lowering rates at all? Seven members of the FOMC see no sense in doing so and do not want to ease monetary policy. Two others expect one act of monetary expansion before the end of 2025.
If the strong unemployment claims data is the result of manipulation by the new BLS chief, it is a double-edged sword for Donald Trump. The US president wants to see a strong economy and rates at 1%, but it does not work that way. Only a cooling of the labor market will lead to a loosening of monetary policy in the long term.
Thus, the closing of long trades on the EURUSD pair after the FOMC meeting was accompanied by unexpectedly strong statistics on jobless claims. Meanwhile, the euro is facing strong headwinds caused by the political crisis in France, where trade unions are leading people to protest, and Donald Trump's demand that the EU must stop buying Russian energy commodities. While it may be possible to abandon oil, natural gas is a different matter. In addition, Europe continues to buy diesel fuel from Turkey and India, which is produced using oil supplied by Russia.
There are some signs that the ECB is concerned about the strengthening of the euro. European Central Bank Vice-President Luis de Guindos said that although the risk of inflation falling below 2% in the eurozone in the medium term was low, further sharp cuts in key interest rates cannot be ruled out. The Governing Council is uncertain whether it has completed the cycle or not. If conditions change, the ECB's position will also change. In July, this official warned that a rally in the EURUSD pair above 1.2 would complicate the situation.
Hedging Costs Against US Dollar
Source: Bloomberg.
These factors are merely secondary. The previously dominant "sell America" strategy has been replaced by "hedge America." The cost of risk insurance is declining, while volume is increasing. According to Ninety One Asset Management, it may add $1 trillion. The recent record-breaking surge of the S&P 500 has stalled the bearish movement in the EURUSD rate.
Weekly EURUSD Trading Plan
Following a rapid rally, the major currency pair will likely experience a correction. However, the uptrend remains intact, so a rebound from key support levels at 1.176, 1.1745, or 1.1695, or a return of the EURUSD pair above 1.1825 can be used to open long positions.
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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