Donald Trump definitely knows how to use the divide-and-conquer principle. By dividing spheres of influence with Russia and China, the US president does whatever he wants in the Western Hemisphere. How can his actions affect the US dollar? Let's discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Uncertainty surrounding US policy boosts the US dollar.
- Europe's economic surprise index has declined.
- Strong US statistics help the greenback.
- Short trades can be considered as long as the EUR/USD pair remains below 1.171.
Weekly US Dollar Fundamental Forecast
The beginning of 2026 evokes a sense of déjà vu. Instead of trade wars, the US is threatening the rest of the world with armed conflicts. Instead of global domination, the US aims to dominate the Western Hemisphere. While Donald Trump imposed tariffs on his allies in 2025, the divide-and-rule approach is now gaining traction. Meanwhile, mounting uncertainty is helping EUR/USD bears.
Russia and China have shown a moderate reaction to the events in Venezuela. Moscow hopes that the US will help it put an end to the conflict with Ukraine. The Kremlin wants to see the Americans take over Greenland, which would destroy NATO. Then it could expand its sphere of influence to Eastern Europe. Beijing hopes that the US's focus on the Western Hemisphere will allow China to solve its issues in Asia.
Global Bond Yield
Source: Wall Street Journal.
As a result, a direct confrontation between the West and the East is turning into a behind-the-scenes game, creating uncertainty and problems for business. Until the situation becomes clearer, the threat of a slowdown in economic growth outside the US will grow. Markets are starting to revamp the chances of monetary expansion cycles, which is leading to a decline in global bond yields and strengthening the US dollar.
For the euro, the situation is exacerbated by a series of disappointing data. Weak German retail sales and the return of European inflation to its 2% target have caused the eurozone economic surprise index to fall to a monthly low. The futures market has shifted the timing of the expected deposit rate hike from the end of 2026 to the beginning of 2027. Traders have raised the odds of the ECB resuming its monetary expansion cycle in the second half of this year. German bond yields have fallen, dragging the EUR/USD pair down.
US Private Payrolls
Source: Bloomberg.
Disappointment in Europe contrasts with the gains in the US. The US ISM Services PMI jumped to its highest level since October 2024, and ADP private sector employment rose by 41,000 in December after falling by 22,000 in November.
Interestingly, after a weak November ADP report, the BLS released impressive non-farm payrolls figures. If history repeats itself and the US labor market performs well, the US dollar may strengthen dramatically. So, perhaps it would be better to sell the EUR/USD on rumors?
Against this backdrop, growing uncertainty due to US dominance in the Western Hemisphere and expectations of strong US employment figures for December are driving the main currency pair down.
Weekly EURUSD Trading Plan
Short positions on the EUR/USD pair formed at 1.1795 and 1.175 can be kept open. Strong US statistics will allow traders to sell the euro again. As long as it trades below 1.171, bears will remain in control of the market.
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.
