The EURUSD pair declined in response to the prospect of the US imposing 50% tariffs on the EU and concerns over a potential slowdown in eurozone GDP. However, the US dollar's struggles once again took center stage in the financial markets, and the euro gained ground. Let's discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Donald Trump threatens the EU with tariff increases of up to 50%.
- The uncertainty surrounding the US administration's policy is helping the euro.
- The US will find it difficult to find buyers for its Treasuries.
- The EURUSD pair can be bought with targets of 1.16 and 1.2.
Weekly US Dollar Fundamental Forecast
While some may have assumed that the truce between the US and China signaled the end of the trade war, Donald Trump's recent outburst suggests otherwise. The US President's recent tariff threats towards the European Union caught officials in Brussels off guard. They believed that the negotiations were proceeding favorably. This miscalculation led to the resurgence of the "Sell America" strategy, propelling the EURUSD pair above 1.14.
In 2024, the US imported $606 billion worth of goods from the EU and exported $370 billion. Trade in goods and services accounts for 4.9% of US GDP, making the European Union the US's largest trading partner. In comparison, China's figure stands at 2.2%.
US Foreign Trade
Source: Wall Street Journal.
For some time, Brussels has expressed confidence in the progress of the negotiations. However, a Wall Street Journal insider claims that the US administration is dissatisfied with the different priorities of EU member states, which are slowing down the process. The EU's reluctance to address issues such as reducing VAT and fees for streaming services, adjusting rules in the automotive industry, and fines for US companies accused of monopolistic practices is a source of concern for the US administration. Ultimately, Ursula von der Leyen's call prompted Donald Trump to delay the increase in tariffs to 50% until July 9.
Escalation, de-escalation, new threats, and delays are accelerating the flight of capital from the US. Tariffs and the associated risks of accelerating inflation and prolonged high Fed rates increase the chances of a recession. In addition, the US President's inconsistent approach to trade policy creates unpredictability and economic turbulence. Adding to this, it seems that the US leader is implementing tariffs with little regard for the consequences, seemingly guided more by his mood than by a considered strategy. Washington's policy is marked by a high degree of uncertainty, which makes it advisable to exercise caution and refrain from entering the US market.
We are now entering a new era, one that is characterized by a shift in demand for bonds, with the high demand experienced during the pandemic-driven period coming to an end. The US now faces the challenge of attracting buyers for its Treasuries, a delicate task made more complex by ongoing disputes with trading partners. The US government's borrowing percentage in relation to its GDP is notably higher than that of other countries. This suggests that a looming debt crisis may have a greater impact on the US economy.
Government Borrowing as Share of All Advanced Economies' GDP
Source: Wall Street Journal.
The aspiration to reshape the world comes with significant costs. Global economic and financial markets are undergoing significant shifts, which cast a shadow over the US dollar. Even a currency as vulnerable as the euro is gaining ground against the greenback in the context of trade wars, thanks to expectations that the ECB will support the eurozone economy by cutting interest rates.
Weekly EURUSD Trading Plan
Long trades on the EURUSD pair formed at 1.1065, 1.1225, and 1.125 can be kept open and increased with the targets at 1.16 and 1.2.
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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