In April, Donald Trump refrained from collapsing the stock market, which resulted in a de-escalation of the conflict with China. History may repeat itself this time. Beijing is taking a tough stance, knowing the US president's weakness. Let's discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- China escalates the trade war with the US.
- The Sell America and TACO strategies are replacing each other.
- The US dollar is falling despite positive news from the IMF.
- Long trades on the EURUSD pair opened at 1.1545 and 1.1585 can be increased.
Weekly US Dollar Fundamental Forecast
Will the US trade war with China resume? Will the parties reach a peace agreement by November? Will the US administration abandon the additional 100% tariffs? Washington and Beijing are both escalating and de-escalating the conflict, which reverberates through the financial markets. Wild swings in the EURUSD rate have become the new norm. Investors are rapidly switching from selling America to buying TACO and back again.
If investors believe that Trump always chickens out, why shouldn't China? Beijing has become significantly bolder. First, it tightened export controls on rare earth minerals. Then, it prohibited local companies from doing business with the American division of South Korean shipbuilding giant Hanwha Ocean. The tensions continue to escalate. China has stated that it does not intend to purchase soybeans from the US during the trade dispute.
Chinese Soybean Imports from US and Brazil
Source: Bloomberg.
Donald Trump accused China of being hostile and threatened to stop vegetable oil imports from China. In this case, however, it is the US that resembles a barking dog that never bites. In 2024, its vegetable oil imports amounted to $1.2 billion. Meanwhile, Beijing's purchases of soybeans from the US amounted to $12.6 billion. If the US administration imposes tariffs, other countries may become options for purchasing goods. For example, China could consider Brazil.
Donald Trump claims that access to the big, beautiful American store comes at a price. However, what if US exports start to fall along with imports? That would create another problem for the struggling economy. Is the US, with its slowing labor market, declining production, and rising prices, even capable of withstanding another trade war? China believes it is not capable. It seems to have found the US administration's weak spot—its unwillingness to let the stock indices fall.
IMF Forecasts for Global GDP Growth
Source: Wall Street Journal.
At this stage, TACO is replacing the Sell America strategy. If Donald Trump does not want to damage the S&P 500 index, it might be advantageous to consider taking the TACO approach. He began with tariffs set at 145% against China and ultimately settled on 30%. Will the new 100% tariffs turn into zero? Beijing is taking action on the verge of a trade war, reviving the Sell America strategy. Despite the IMF maintaining its forecast for the US economy and lowering its global GDP estimates, the US dollar is declining.
The US may face a second trade war, and a further slowdown in GDP could lead to aggressive monetary expansion by the Fed. If President Trump does not reconsider his position, investors may be compelled to divest their American assets.
Weekly EURUSD Trading Plan
The 1.1545 level remains a strong key support level for the EURUSD pair. Those who did not open long trades near this level can now take advantage of this opportunity. Bulls have managed to keep the price above 1.1585. The recommendation is to buy.
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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