Donald Trump is quick to point fingers. First, it’s Jerome Powell’s fault, then Joe Biden’s. It’s possible that the 0.3% U.S. GDP contraction in the first quarter is temporary. But what if it’s not? Let’s discuss it and make a trading plan for EUR/USD.
The article covers the following subjects:
Major Takeaways
- U.S. imports surged 41% in the first quarter.
- Net exports slashed GDP by a record 4.8%.
- A second wave of imports threatens recession.
- The EUR/USD's return above $1.136 is a reason to buy.
Weekly Fundamental Forecast for Dollar
Markets hear only what they want to hear: the White House’s words matter more than the numbers. Donald Trump blamed Joe Biden for the U.S. GDP’s first contraction since 2022, down 0.3% in the first quarter, while Stephen Miran claimed the economy is stronger than it seems. He argued that rising private investment does not occur when companies expect a recession. As a result, the ongoing S&P 500 rally allowed EUR/USD bears to launch a counterattack.
Blaming the new president for the economy’s weak start might be unfair. However, Trump’s radical changes are causing massive distortions. Front-loading of U.S. imports ahead of tariff implementation led to a 41% surge, the fastest since 2020. Net exports subtracted a record 4.8 percentage points from GDP, the worst since tracking began in 1947.
U.S. GDP Dynamics and Structure
Source: Bloomberg.
Markets view these figures as temporary, expecting the negative impact from imports to fade as companies reduce their inventories. But tariffs will raise costs. And don’t forget the second wave. The White House’s 90-day tariff deferral allows non-residents to continue front-loading imports. I doubt the second quarter’s GDP will look better. A technical recession is quite likely, and that’s bad news for the U.S. dollar.
In April, the USD index posted its worst performance since 2022, while EUR/USD surged 5%. This makes sense. While the U.S. economy contracted by 0.3%, the eurozone expanded by 1.4% annually, outpacing the U.S. for the first time in nearly three years.
European Economy Dynamics
Source: Bloomberg.
What’s good for the Old World is death for the New. The same front-loading of U.S. imports has helped the currency bloc. I don’t expect this situation to change in April–June, as the White House’s 90-day tariff deferral lets European companies continue what they’ve started. Meanwhile, U.S. domestic demand will likely slow further due to uncertainty, protectionism, and anti-immigration policies.
Still, Commerzbank suggests that the worse U.S. data gets, the more likely Trump is to rethink much of his trade policy. So far, this theory holds, but I doubt the Republican will abandon his plans.
The dollar’s late-April strength may stem from portfolio rebalancing by asset managers. They sold the greenback during capital flows from the U.S. to Europe and needed to buy it back at month-end.
Weekly Trading Plan for EURUSD
In this environment, a deep EUR/USD pullback seems unlikely. Use rebounds from supports at $1.1285, $1.124, and $1.117, or a return to $1.136, 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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