The US dollar continues to fluctuate wildly in response to the US administration’s decision to cancel old tariffs and introduce new ones. Investors are trying to get a handle on what has changed and how the EUR/USD pair will perform. Let’s discuss these topics and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The EUR/USD pair is consolidating.
- The Forex market evaluates the impact of tariffs.
- The odds of a Fed rate cut are shifting.
- Trades on the EUR/USD pair can be opened on a breakout of the 1.1765–1.1835 range.
Weekly US Dollar Fundamental Forecast
While commodity markets are keeping an eye on the twists and turns in the Middle East, stock markets are buzzing about the dangers of AI, and Forex traders can’t agree on how tariffs will affect the US dollar. Around 34% of investors who responded to the MLIV Pulse survey think you should steer clear of the greenback. This figure was 29% before the Supreme Court ruled that import duties were illegal. Does this mean that the return of previously collected duties to the United States is bad news for EUR/USD bears?
Strategies to Hedge Against Tariff Unwind
Source: Bloomberg.
According to Bloomberg, the US will have to pay out around $170 billion, which will negatively affect the budget and public debt, lift Treasury bond yields, and deal a blow to the US dollar. The Bank of Nassau notes that a reduction in the average tariff rate will slow inflation, allowing the Fed to accelerate monetary policy easing and creating a tailwind for the EUR/USD pair. Moreover, investors have concerns about Kevin Warsh as the new Fed head. At the same time, the futures market expects a rate cut not only in 2026 but also in 2027.
Brown Brothers Harriman believes that the Supreme Court’s verdict will have no impact on the US dollar. The old tariffs have been replaced by new ones. Why shouldn’t markets and economies adapt to them as they did to the previous ones? Indeed, no one is rushing to sell Treasury bonds on fears of the US budget and debt issues. Meanwhile, Treasury yields have fallen to their lowest levels since November.
US 10-Year Treasury Yield
Source: Bloomberg.
Finally, EUR/USD bears believe that the return of tariffs is a kind of fiscal stimulus for the US economy, since American consumers bore the bulk of the burden. In addition, the Supreme Court’s ruling that import duties are illegal undermines Trump’s authority. This means that it will not be so easy for Donald Trump to lower interest rates.
Discussions are in full swing, which, against the backdrop of the rollercoaster ride of the S&P 500 index and crude, is pushing the EUR/USD pair into consolidation. All the more so because the futures market cannot decide on the month when the Fed will resume its monetary expansion cycle. Rising unemployment claims have brought the likelihood of a federal funds rate cut in June from 46% to 51%. Against this backdrop, the US dollar slumped.
While investors have yet to reach a consensus on the impact of tariffs on the greenback, it will be difficult for the main currency pair to break out of the 1.1765–1.1835 range. It will certainly be influenced by events in the Middle East and the release of US labor market data for February.
Weekly EURUSD Trading Plan
As for the trading plan, it is better to take a wait-and-see approach and stay out of the market or place pending orders to buy the EUR/USD pair at 1.1835 and sell it at 1.1765.
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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