Instead of the “Sell America,” the “Hedge America” strategy is gaining traction in the markets. However, the dollar’s stabilization and the risks to its growth amid a prolonged Fed pause are forcing investors to reconsider their stance. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The US administration has weakened the dollar.
- China is not rushing to sell its Treasury bonds.
- Hedge America is slowing down.
- Short trades on the EUR/USD pair can be opened on a breakout of 1.185.
Weekly US Dollar Fundamental Forecast
How can the US dollar be weakened when the US economy is thriving, the stock market is booming, and interest rates are higher than those of its counterparts? In the past, such a balance of power would have signaled American exceptionalism and led to a rally in the USD index. However, as soon as Donald Trump took office, everything turned upside down. However, everything has its limits, and this circumstance instills confidence in EUR/USD bears.
Tariffs and threats to the independence of the Fed were enough to launch a “Sell America” strategy. However, it proved difficult to abandon the US securities markets. They are the world’s largest, deepest, and most liquid. There is plenty to choose from and plenty to earn. Besides, the question always arises: what can replace them?
US Treasury Securities Held by China
Source: Bloomberg.
Let’s take China, for example. It has been getting rid of its Treasury securities for a long time, but it is doing so extremely slowly and smoothing the process by making purchases on behalf of Belgium. The accelerating Sell America trend will strengthen the yuan, which will undermine the competitiveness of local manufacturers. Where to invest the money received? China has tense relations with Japan, and Europe may easily join the American sanctions. Gold remains an option, but the market is so small that you cannot buy too much.
Many of the above reasons have led foreign investors to shift from “Sell America” to “Hedge America.” They continue to hold and even buy US assets, while hedging their risks by selling the dollar. This process has been actively underway since the Trump administration’s April tariffs. As a result, stock indices have risen sharply, while the greenback has weakened by 10%.
What was happening was clearly visible in the US Treasury bond market. Non-residents increased their holdings of Treasuries to a record $9.4 trillion in November, but the pace of purchases slowed over 12 months from $641 billion to $422 billion.
Treasury Purchases by Foreign Investors
Source: Wall Street Journal.
However, there is a limit to everything. Why waste money on risk hedging if the US dollar stabilized in the second half of 2025 and is likely to rise in the first quarter amid a prolonged pause in the Fed’s monetary expansion cycle? Hedging ratios may also fall, just as they rose after Liberation Day in the US. This is a completely different story. It is favorable for the greenback.
According to Credit Agricole, most of the negative factors have already been factored into its rate, so positive news will lead to a rally in the USD index, while bad news will not cause it to fall significantly.
Weekly EURUSD Trading Plan
In this regard, even a greater-than-expected slowdown in US inflation will boost the EUR/USD pair in the short term. Otherwise, the reluctance of consumer prices to fall will be a reason to build up short positions on a breakout of 1.185.
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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