The conflict between the US and Canada could become a precursor to a broader global trade war. Meanwhile, Washington’s efforts to isolate Iran are unlikely to succeed without Beijing’s cooperation. Will China go along with the US strategy? Let’s examine the issue and develop a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Sanctions against Iran have boosted the US dollar.
- The conflict between Washington and Ottawa is a dress rehearsal for a trade war.
- Investors fear a global trade war.
- Short positions on the EUR/USD pair can be opened near 1.170.
Weekly Fundamental Forecast for Dollar
Want to glimpse the future? Look to the past. King Henry VIII of England and Roman Emperor Nero diluted gold and silver coins with cheaper metals such as copper, undermining confidence in the monetary system. The US dollar sits at the heart of the modern monetary system today. Therefore, Kevin Warsh’s passivity and Scott Bessent’s plans to control Treasury yields could undermine confidence in the US currency. Conversely, an unprecedented economic war with Iran could restore that confidence, as suggested by the decline in EUR/USD quotes.
The greenback’s strengthening reflects a combination of factors. First, fears about the global economy have intensified as the global trade war resurfaces. Second, investors are recognizing that US sanctions against Iran rely on the dollar-based financial system, which remains strong. Finally, speculators are returning to the greenback after their interest in the currency cooled considerably in recent months. Hedge funds and asset managers have reduced their net long positions in the US Dollar Index to a four-week low.
Speculative Positions on US Dollar
Source: Bloomberg.
What could be worse than a conflict in the Middle East? A combination of that conflict and a global trade war. The US launched “Operation Economic Pariah” against Iran, which could have devastating consequences. China buys about 90% of Iran’s oil, making it virtually impossible to isolate Tehran without Beijing’s cooperation. Sanctioning Chinese intermediary companies would likely trigger retaliation, and no one would benefit from another clash between the world’s two largest economies.
Interestingly, the US dollar strengthened against the yuan during the 2018 trade war between Washington and Beijing, as both sides responded to tariffs on a “tit-for-tat” basis. A similar pattern is now emerging in Washington’s conflict with Ottawa, with the Canadian dollar falling sharply. In 2025, by contrast, the greenback weakened when other countries adopted Donald Trump’s tariffs rather than retaliating with tariffs of their own. That was when the “Sell America” trend began to take shape.
What can we learn from past experience? First, we should expect the TACO trade—the US president’s negotiating strategy of making aggressive threats and then backing down to reach a less severe outcome. Second, we need to closely monitor China’s response to the economic blockade of Iran. Finally, we should remember that there are always ways to circumvent restrictions and sanctions.
The US dollar is likely to strengthen initially, supported by a partial restoration of confidence and increased demand for safe-haven assets. Over time, however, the “Sell America” trend could regain momentum, putting renewed pressure on the greenback.
Weekly Trading Plan for EUR/USD
Against this backdrop, selling the EUR/USD at 1.170 and subsequently adding to short positions near 1.167 appears to be the right strategy. If bulls fail to reclaim 1.167 in the near term, the pair will likely decline to 1.160 and below.
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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