Kevin Warsh has stated that Donald Trump did not ask him to cut interest rates — and that he would have refused if asked. However, opposition from a Republican senator could delay the appointment of a new Fed chair. Let’s analyze the situation and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Negotiations between the US and Iran have failed.
- The ceasefire has been extended.
- US retail sales exceeded expectations.
- Short trades can be considered as long as the EUR/USD pair remains below 1.176.
Weekly Fundamental Forecast for Dollar
The failure of US-Iran talks, hawkish remarks from Kevin Warsh, and the strongest US retail sales figures in a year: such a combination, one might think, should have sent EUR/USD quotes into a tailspin. Instead, the major currency pair saw only a modest decline. Did Donald Trump’s decision to extend the ceasefire indefinitely come to the rescue of EUR/USD bulls?
The euro is turning a blind eye to cross-market correlations. The Strait of Hormuz remains closed. If the blockade lasts another month, Brent, according to Citi, will climb to $110 per barrel. This is terrible news for both the global economy and the energy-dependent eurozone. However, instead of falling, the EUR/USD pair is showing the second-best performance among key dollar pairs, returning to pre-conflict levels.
Performance of G10 Currencies
Source: Bloomberg.
We have the US stock market to thank for this, where algorithms driven by momentum prevail over fundamental factors, allowing TACO and FOMO to drive the market. At the same time, investors seem to be overlooking the bad news. This situation can only change if greed gives way to fear.
It would seem this should have happened when Iran failed to show up for the talks. However, US officials convinced Donald Trump that the authorities in Tehran are divided, with different factions holding conflicting views. Under such conditions, even signed agreements may prove unreliable. As a result, Washington is waiting for proposals from the opposing side, a move that requires extending the ceasefire.
The US is not enthusiastic about resuming costly and ineffective military operations, which would certainly drive oil prices higher. The US intends to focus on its economy, which is showing the strongest retail sales growth in a year, while the Fed may remain without a new chair until summer.
US Retail Sales
Source: Bloomberg.
According to the Kalshi prediction market, Kevin Warsh has just a 24% chance of securing the position by May 15 — when Jerome Powell is expected to step down — amid strong opposition from Republican Senator Thom Tillis. He has vowed to vote against the nomination as long as the current Fed chair remains under judicial investigation, and Donald Trump shows no intention of intervening. Who will blink first?
Kevin Warsh said that the president did not ask him to cut rates — and that he would have refused if he had been asked. More broadly, he argues that the Federal Reserve bears significant responsibility, having contributed to inflationary pressures by altering the PCE framework.
Weekly Trading Plan for EUR/USD
If Jerome Powell remains Fed chair until summer and oil prices continue to rise, the US regulator may begin to consider raising interest rates, which would support the US dollar. If the EUR/USD pair fails to increase above 1.176, short positions can be opened.
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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