After a wave of "sell America" sentiment, the markets have returned to buying everything US-related, helping EUR/USD bears push back. Still, weakness in the US economy and capital outflows from the United States to Europe will continue to support the euro. Let's discuss it and make a trading plan.
The article covers the following subjects:
Major Takeaways
- A rally in US stock indices has supported the dollar.
- Investors are increasing the share of European stocks in their portfolios.
- The odds of a Fed rate cut in September jumped to 92%.
- A rebound from 1.154 or 1.149 is a signal to buy EUR/USD.
Weekly Fundamental Forecast for Dollar
Sometimes, luck is on the side of fools — because they don't hesitate. When the S&P 500 dropped in response to disappointing July jobs data from the US, retail investors did what they always do: they bought the dip. They weren't scared by economic cooling or by the sharpest rise in the VIX (fear index) since early April. As a result, markets shifted back from "sell America" to "buy everything American," giving EUR/USD bears a chance to strike back.
Going against the crowd is like trying to stop a tram with your fingernails. The S&P 500 keeps hitting new record highs in 2025, driven almost entirely by retail traders. Meanwhile, institutional investors are quietly moving their money out of US assets. According to a Goldman Sachs survey, 28% of 333 hedge funds managing over $1 trillion plan to increase their exposure to European stocks in the second half of the year. Only 2% plan to reduce it.
US and European Equity Allocation Outlooks
Source: Bloomberg.
Goldman Sachs says the US faced high volatility and political uncertainty during the first half of 2025. As a result, investors are shifting their attention to other regions. Capital outflows from the New World to the Old continue to support EUR/USD.
The Trump-driven firing of the Bureau of Labor Statistics chief only adds fuel to the fire. SEB has expressed concern that the market sees this as another step toward centralizing power in the White House. Investors are now demanding a higher risk premium and shifting capital into non-US assets. If Trump's attacks on Jerome Powell hurt the Fed's independence, then firing the head of the BLS raises doubts about the reliability of US economic data.
Naturally, retail investors, with their consistent buying of S&P 500 pullbacks and preference for US assets, remain a key source of support for the dollar. But if the crowd were always right, the sun would still revolve around the Earth.
In the end, EUR/USD's fate will come down to one question: Can the US economy withstand the pressure from Donald Trump's tariffs? Before the July jobs report, investors believed it could. Now, they think the opposite. The labor market is cooling, and inflation could start heating up again — a stagflation scenario that's far from bullish for the dollar.
Weekly Trading Plan for EURUSD
The odds of a Fed rate cut in September have jumped to 92%. Coupled with capital outflows from the US and a slow freeze of the American economy, this makes buying EUR/USD on rebounds from support at 1.155 and 1.149 a reasonable approach.
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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