It looked like the EURUSD bears were about to lose the week ending October 17. However, the TACO trade, France's credit rating downgrade, and political events in Japan helped them recover. Let's discuss it and make a trading plan.
The article covers the following subjects:
Major Takeaways
- TACO trading saved the US dollar.
- France's credit rating was downgraded.
- The US and China are about to hold trade talks.
- EURUSD remains in the 1.15–1.18 range.
Weekly Fundamental Forecast for Dollar
A single word from Trump saved the dollar. The greenback was heading for its worst week since August, but the White House leader's comment that high tariffs on China were "unsustainable" turned everything upside down. EURUSD couldn't stay above 1.17 and collapsed. France's credit downgrade and investors returning to Takaichi-related trading added fuel to the fire.
Weekly Dynamics of the US Dollar
Source: Bloomberg.
According to ING, the main reasons for the dollar's weakness in mid-October were sudden concerns over US regional banks, growing hopes for a truce in Ukraine, falling oil prices, an escalation in the US–China trade conflict, and dovish comments from the Fed. Additional pressure came from easing political risks in France and doubts that Sanae Takaichi will become Japan's prime minister. Most likely, she will.
The Liberal Democratic Party formed a coalition with the Innovation Party, and parliament will vote for a new prime minister on October 21. The yen retreated, which supported the USD index, as did the downgrade of France's sovereign credit rating by S&P Global Ratings from AA– to A+ amid ongoing fiscal uncertainty. The political drama has reached its peak but isn't over yet. Having survived a no-confidence vote, Sébastien Lecornu now faces a tough budget battle.
France's Credit Rating Dynamics
Source: Bloomberg.
The internal weakness of the yen and euro contributed to the EURUSD drop, but the main driver was Washington's attempt to ease trade tensions with Beijing. Alongside Trump's words about the tariffs, investor Scott Bessent's statement about the upcoming negotiations and a potential US–China leaders' meeting helped calm fears of a US economic slowdown. Combined with fading concerns over regional banks, this boosted treasury yields and strengthened the dollar.
Has the TACO trade returned for good? Investors have seen this movie before. Back in April, tariffs skyrocketed, but the US and China quickly reached an agreement. This time, Trump demands that China ease export controls on rare earth minerals and increase purchases of American soybeans.
US–China Tariff Dynamics
Source: Bloomberg.
Thus, with the euro and yen still vulnerable, the easing of trade tensions and rising treasury yields are pushing EURUSD lower. However, monetary policy divergence between the ECB and the Fed still supports the bulls.
Weekly Trading Plan for EURUSD
Given the situation, EURUSD is likely to consolidate in the 1.15–1.18 range. A drop to 1.15–1.16 would be an opportunity to look for long entries, while a rally toward 1.17–1.18 would offer selling opportunities.
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
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
