The US labor market is so weak that it cannot withstand a strike. However, investors are concerned that the situation overseas is much more dire. The conflict in the Middle East has triggered a sell-off in the EUR/USD pair. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- US employment fell by 92,000.
- Iran is ready to continue the conflict with the US.
- Gas prices in Europe are rising faster than in the US.
- Short positions on the EUR/USD pair can be opened with targets of 1.145 and 1.135.
Weekly US Dollar Fundamental Forecast
Donald Trump is determined to fight until the enemy surrenders completely and calls oil at $100 per barrel a “short-term price” the world must pay for security. By appointing Khamenei’s son as head of state, Iran signals that it has no plans to surrender. The conflict in the Middle East may become a long-term one. As a result, the EUR/USD pair has opened the second week of spring with a downward gap.
The market reaction once again proves that geopolitics overshadows other factors. It would seem that the weak US employment report should have sent the US dollar into freefall. In February, the US economy shed 92,000 jobs, posting the third decline during the last six months. Meanwhile, unemployment rose to 4.4%. The market is so weak that it cannot withstand a strike by healthcare workers.
US Employment
Source: Wall Street Journal.
The odds of a federal funds rate cut in June jumped to 50% at one point, temporarily weakening the greenback. However, the probability then fell to 35%. The Fed may soon face a scenario in which its worst nightmare turns into reality. The US regulator will have to choose between fighting high inflation, which implies a rate hike, and protecting the labor market and the economy, which requires a rate cut.
The rift within the FOMC may widen further. Following the release of February’s employment data, Michelle Bowman suggested that it was necessary to resume the cycle of monetary expansion. Fed President Susan Collins was inclined to keep the interest rate unchanged, while her colleague from the Cleveland Fed, Beth Hammack, one of the Committee’s hawks, spoke of two-sided risks.
The Fed remains dependent on the conflict in the Middle East, and investors continue to buy the US dollar. According to JP Morgan, hedge funds and asset managers have reduced their net short positions on the greenback by two-thirds in recent days. As a result, the EUR/USD pair fell to its lowest level since November.
Speculative Positions on US Dollar
Source: Bloomberg.
For the USD index, geopolitical factors are more important than central banks, whose actions become less significant. If this were not the case, the euro would have risen amid a shift in market expectations from ECB passivity in 2026 to a single rate hike with a 30% probability of two hikes.
However, what is more important for investors is that natural gas prices in Europe have risen by 67%, while in the US they have increased by 11%. According to Strategic Perspectives, this increase in fuel costs will cost the EU an additional €1.3 billion.
Weekly EURUSD Trading Plan
Thus, investors are turning a blind eye to signs of weakness in the US economy, believing that abroad, amid the protracted conflict in the Middle East, the situation will be much worse. Against this backdrop, short positions on the EUR/USD pair can be opened with targets of 1.145 and 1.135.
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.
