Investors Turn to Buy American Strategy. Forecast as of 13.05.2025
Donald Trump’s strategy was to drive the S&P 500 to new lows and then orchestrate a dramatic recovery to record highs. While the US President has accumulated significant wealth, the US economy is beginning to suffer from acute pain. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The US lowered tariffs on China from 145% to 30%.
- Stock indices and the US dollar soared.
- Investors doubt whether the Fed will cut rates in 2025.
- A test of support at 1.1065 will define the EURUSD pair’s trajectory.
Weekly US Dollar Fundamental Forecast
Buy low, sell high. It appears that Donald Trump may have manipulated the markets. First, he caused a decline in US stock indices on “Liberating Day,” and then he urged investors to purchase shares amid a 90-day tariff delay. Since then, the S&P 500 has surged by 14%, and the “sell America” strategy has been replaced by “buy American.” As a result, the USD index experienced its most significant daily gain since the November elections amid the reduction of import duties on Chinese goods from 145% to 30%.
US Dollar Index Performance
Source: Bloomberg.
The recent shift in the relationship with Beijing was both abrupt and unexpected. In anticipation of the upcoming US-China meeting in Switzerland, President Donald Trump stated that the imposition of tariffs at a rate of 80% would be a fair solution. US Commerce Secretary Howard Lutnick has stated that a 34% tariff alongside a separate 20% tariff related to fentanyl concerns should be imposed. In fact, the figure was eventually established at 30%.
The likelihood of a recession has decreased significantly, and the derivatives market has adjusted its projections for the scale of the Fed’s monetary expansion from 75 basis points prior to the agreement with China to 56 basis points. Rumors are circulating that the central bank will not lower rates in 2025. It is evident that, irrespective of the comparison with previously established tariffs, the current tariffs have already damaged the US economy. Indications of a slowdown in the labor market are anticipated to surface in May, with accelerating inflation expected in June.
Market Expectations on Fed Rate
Source: Bloomberg.
If the economic outlook shifts more rapidly than projected, resulting in earlier acceleration in consumer prices, the EURUSD pair could face further downward pressure. If there is no recession, the Fed will likely abandon monetary policy easing.
In this regard, investors are paying close attention to the April US inflation report. For an extended period, macroeconomic statistics were eclipsed by the US administration’s trade policy; however, the current environment suggests a resurgence in the importance of these statistics.
According to Bloomberg, the revised tariffs are expected to reduce the US GDP by 1.5 percentage points and accelerate the personal consumption expenditure index by 0.9 percentage points within one to two years. While Donald Trump’s actions may have influenced stock indices, the greenback has lost its traditional American exceptionalism. Against this backdrop, the EURUSD pair’s pullback will be limited, although it may persist in the near term.
The outcome will be contingent on the inflation data. Its acceleration will serve as a critical indicator in determining whether the US dollar will continue to directly align with stock market indices. On paper, the higher the prices, the less probable a rate cut by the Fed would be, which would be unfavorable for the S&P 500 index. Will this be favorable or unfavorable news for the US dollar?
Weekly EURUSD Trading Plan
If the EURUSD pair breaches the key support level of 1.1065, one can consider opening short positions, adding them to the ones initiated at 1.1325. On the contrary, if the major currency pair fails to break through the support level, long trades 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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