The United States has made it clear that it will not accept the creation of a single currency within the BRICS bloc. The participating countries should guarantee that they do not intend to pursue this course of action. Donald Trump recently expressed this viewpoint, and the US dollar has reacted favorably to his statement. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- Donald Trump threatens BRICS with 100% tariffs.
- The French government has made it clear that it will not be blackmailed.
- The acceleration in US employment has supported the US dollar.
- Short trades opened on the rise to 1.06 proved to be profitable on the EURUSD pair.
Weekly US Dollar Fundamental Forecast
Donald Trump’s threat to impose a 100% tariff on BRICS countries if they do not abandon their plans to create their own currency caused significant volatility in financial markets and prompted investors to seek the safety of the US dollar. The decision to sell the EURUSD pair following the release of European inflation data proved to be a sound one. Furthermore, the upcoming vote of no confidence in the French government represents a significant challenge for the euro.
The European Central Bank (ECB) has reported that consumer prices in the eurozone have exceeded its target for the first time in three months, reaching 2.3%. This reduced the likelihood of a 50 bp cut in the deposit rate in December to less than 15%. This factor should have supported the EURUSD’s quotes. However, core inflation has remained at 2.7%, and the services sector’s inflation slowed from 4% to 3.9%. All this, coupled with the “buy the rumor, sell the news” principle, prompted bears to push the EURUSD pair lower.
EU Inflation Change
Source: Financial Times.
The National Rally party, which dominates the French parliament, has issued an ultimatum to Michel Barnier’s government, threatening to widen the spreads of French and German bond yields to the highest level since the eurozone debt crisis in 2012 if he refuses to amend the budget. The finance ministry has stated that it will not concede to blackmail. The draft proposal entails a €60 billion budget adjustment with a projected deficit of 6.1% in 2024. The left’s demands will reduce the first figure by €10 billion, extending the timeline for achieving the 3% deficit target set by the EU.
France-Germany 10-Year Bond Yield Spread
Source: Bloomberg.
The French government may face a vote of no confidence, which could hurt the EURUSD exchange rate. Meanwhile, governments worldwide are taking Donald Trump’s blackmail seriously. Canadian Prime Minister Justin Trudeau even traveled to Florida to meet with Trump to resolve the issue, and Mexican President Claudia Sheinbaum spoke with the Republican on the phone.
It would be interesting to see how Brazil, Russia, India, China, South Africa, Saudi Arabia, the UAE, Egypt, and Ethiopia would respond to the threat of 100% tariffs against the BRICS. Donald Trump is demanding a guarantee from these countries not to introduce their single currency despite the bloc members rejecting the idea at the previous BRICS summit. It is unlikely that Moscow and Beijing will agree to such guarantees, while the rest are likely to comply with Washington’s demands, thereby supporting American exceptionalism and the US dollar.
Weekly EURUSD Trading Plan
Short trades on the EURUSD pair can be opened on expectations of an acceleration in US employment in November, with an increase from 12k to 200k. The hurricanes significantly impacted October’s figure. At the same time, the US labor market’s stabilization should increase the likelihood of a Fed pause in January and support the greenback. Therefore, one can open more short positions on the euro, adding them to the ones opened on the growth to 1.06.
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. 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 2004/39/EC.
