The absence of data resulting from the shutdown is prompting a degree of caution among both the Fed and traders. These developments are reflected in the decline in volatility on the Forex market. As a result, the US dollar gains strength. Let's discuss this topic and develop a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The cancellation of tariffs will undermine confidence in the US dollar.
- Volatility on Forex is falling due to the shutdown.
- Donald Trump is promising $2,000 to everyone.
- Long trades on the EURUSD pair can be opened above 1.154.
Weekly US Dollar Fundamental Forecast
The American economy is racing full speed toward the concrete wall of tariff elimination. The US dollar, which risks losing confidence again, is weakening before our eyes. However, the greenback has a safety net—the shutdown. On the one hand, the government shutdown makes the Fed cautious. On the other hand, the lack of data reduces trader activity and volatility on Forex. As a result, the EUR/USD pair takes two steps forward and one step back.
"It looks like we're getting very close to the shutdown ending," Donald Trump said. However, there is no consensus between Republicans and Democrats. Markets expected a compromise by the end of the first week of November and sold the US dollar. Their expectations were not met, and profit-taking on EUR/USD long positions triggered a pullback.
The lack of data due to the shutdown is forcing the Fed and investors to remain cautious. They are less inclined to take risks, strategists are postponing forecasts, and quant funds have less data to base their decisions on. As a result, currency market volatility has fallen sharply since Liberation Day.
Forex Market Volatility Index
Source: Bloomberg.
As a rule, a decline in the volatility of Forex trading instruments reduces demand for the US dollar as a safe-haven asset. However, when the greenback is trading with a loss of confidence, the peak in volatility acts as a kind of safety cushion for it.
Investors are adopting a risk-off stance. Caution is becoming the hallmark not only of the Forex market, but also of the Federal Reserve. Alternative data may indicate a slowdown in the labor market, and the derivatives market gives a 63% chance of a cut in the federal funds rate in December. There is no certainty about this. On the contrary, a decline in the likelihood of a continuation of the monetary expansion cycle will likely trigger a sweeping sell-off in the EUR/USD pair.
US Labor Market Data
Source: Bloomberg.
Thus, the US dollar is making a herculean effort to use its safety net. Perhaps it would have succeeded if it weren't for Donald Trump. The US leader is throwing a tantrum over his imminent defeat in the Supreme Court. He has announced that tariffs will enable poor Americans to increase their income by $2,000 and that the United States will soon begin to pay off its debts.
In fact, debt repayment is ongoing as Treasury bonds mature. As for the $2,000, these payments will inflate the budget deficit. The US administration's statement was so ridiculous that Scott Bessent had to defuse the shock. The Treasury Secretary noted that Americans will be able to earn $2,000 through tax cuts.
Weekly EURUSD Trading Plan
A new wave of distrust in the US dollar due to the imminent removal of tariffs is allowing EUR/USD bulls to control the situation. As long as the euro remains above 1.154, long positions can be considered.
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.
