The greenback is struggling to find direction while the Supreme Court hearing is underway. Meanwhile, EUR/USD bears face risks, including tariff cancellations, a snowballing budget deficit, slowing GDP growth, and aggressive Fed rate cuts. Let us discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Supreme Court is skeptical about tariffs.
- ADP employment data was upbeat.
- The Services PMI rose to its February peak.
- Long trades on the EURUSD pair can be opened with the target of 1.155 and 1.161.
Weekly US Dollar Fundamental Forecast
A tariff is a tax, and Americans cannot be taxed without the approval of both houses of Congress and the US President. Such sentiments were expressed in the Supreme Court on the first day of the hearing on the legality of Donald Trump's import duties. Although Treasury Secretary Scott Bessent, who was present at the trial, expressed optimism, the US administration did not appear to have a smooth start. The potential negative consequences of the US tariffs being abolished were deemed to be greater than the positive macroeconomic statistics, and this allowed the EUR/USD pair to reach the bottom.
In October, ADP reported a 42,000 increase in private sector employment, with September's figure also revised upwards, indicating a gradual improvement in the labor market. Stephen Miran was encouraged by the figures, but believes that a cut in the federal funds rate is still required.
ADP Private Payrolls
Source: Bloomberg.
However, the futures market is anticipating otherwise, reducing the likelihood of a sharp cut in borrowing costs in December from 74% to 62%. Investors welcomed the positive employment figures, as well as the encouraging business activity in the service sector, as reported by the ISM. The index rose to 52.4, reaching its highest level since February. Its performance demonstrates that the shutdown has had a less significant impact on the US economy than anticipated. The latest figures from the purchasing managers' index (PMI) point to a possible pause in the current monetary expansion cycle.
The positive macroeconomic statistics prompted an increase in Treasury bond yields, which should have strengthened the US dollar. However, hopes for the government to resume work and fears about the return of tariffs exerted downward pressure on the EUR/USD rate. Should the United States encounter a budget deficit due to the recent Supreme Court ruling, there is a possibility that Treasury yields could rise further.
Even in the event of an unsuccessful outcome, the Trump administration retains a range of options at its disposal. There are other laws that allow tariffs to be imposed, albeit not as quickly as in the case of a supposed state of emergency. In the event that the collected revenues are not returned, they can be passed through Congress retroactively. However, there is a degree of uncertainty regarding the efficacy of this approach. The US dollar is showing signs of vulnerability and is losing ground.
USD Index Performance
Source: Bloomberg.
According to RBC Capital Markets, the USD index may follow a similar pattern to that seen in 2001-2008, when it fell 40% after the stock market bubble burst due to the dot-com crisis. The collapse of the S&P 500 index will probably force investors to flock to non-US securities and weaken the US dollar. According to the consensus forecast of Reuters analysts, the EUR/USD pair is expected to rise to 1.18, 1.2, and 1.21 in 3, 6, and 12 months, respectively.
Weekly EURUSD Trading Plan
However, EURUSD bulls are still trying to push the price above 1.15. However, it is not certain that they will succeed, but nothing ventured, nothing gained. If the pair consolidates above the key support level, long positions can be opened with the target of 1.155 and 1.161.
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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