The rally in EUR/USD quotes violates the basic rules of fundamental analysis. However, since Donald Trump is the US president, this is hardly unexpected. The US leader does want to weaken the dollar. Let's discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The dollar became the scapegoat in the TACO trade.
- The greenback fears currency interventions.
- The market turmoil has changed the ground rules.
- If the EUR/USD pair slides below 1.1835, short trades can be considered.
Weekly US Dollar Fundamental Forecast
Some decades pass with nothing happening. Some weeks feel like decades. The beginning of 2026 has been so turbulent for the global economy, politics, and financial markets that it feels like you need a break. The basic principles of fundamental analysis have been violated, and FOMO has pushed the EUR/USD rate to 1.19. However, is it any wonder that the system of international relations is breaking down?
A strong economy means a strong currency. Fish look for deeper waters, and capital looks for higher returns. These principles have served as the basis for exchange rate formation on Forex for decades. According to the Atlanta Fed's leading indicator, US GDP is set to grow by 5.4%. Meanwhile, judging by business activity, the eurozone economy is far from impressive.
EU PMIs
Source: Bloomberg.
Bloomberg analysts do not expect the federal funds rate to fall until June. This means a wide spread with ECB rates, greater attractiveness of US assets compared to European ones, capital outflow from Europe to the US, and a fall in EUR/USD quotes.
You can take a horse to water, but you can't make it drink. The basic principles of fundamental analysis work in a stable market. At the beginning of 2026, it would be impossible to call the market stable. Political factors clearly run the show, and economic factors lie on the sidelines.
Investors have moved from Sell America to TACO, but while stocks and bonds have risen, the greenback has been the scapegoat. The idea of hedging currency risks by non-residents investing in US assets has been revived.
Furthermore, the EUR/USD pair has opened the week with a gap amid statements by Japanese officials about coordinated intervention in the Forex market to stabilize the yen. In 2024, Tokyo spent more than $100 billion on currency interventions. However, investors were much more frightened by the word "coordinated."
USD/JPY Performance and Currency Interventions by Japanese Government
Source: Bloomberg.
Against this backdrop, markets remembered the Plaza Accord of 1985, after which the USD index fell by more than 40% over two years. Given Donald Trump's plan to use devaluation to boost the competitiveness of American manufacturers, coordinated currency intervention does not seem unfeasible. If the Bank of Japan has a large stockpile of dollars to sell, the New York Fed has an endless supply.
The USD/JPY pair has fallen enough for Japan to stop worrying about an excessively weak yen. Markets shoot first and ask questions later, so investors need to pull themselves together.
Weekly EURUSD Trading Plan
It seems highly likely that the gap will be closed, but the EUR/USD pair's performance will depend on whether it remains above the support level of 1.1835. If it does, long positions can be considered. Otherwise, short 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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