US Dollar Relies on Improvisation. Forecast as of 07.02.2025
The markets are trying to discern the US President’s strategic vision or whether his actions are spontaneous. This ambiguity poses a significant risk, as it could lead to substantial fluctuations in the EURUSD pair in response to the employment data report. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The White House is committed to a strong dollar policy.
- The paths of the Fed and other central banks are diverging.
- The euro is preparing for a roller coaster ride after the US employment report.
- Short trades at 1.035 and long trades at 1.041 on the EURUSD pair are relevant.
Daily US Dollar Fundamental Forecast
The United States aims to bolster the strength of the US dollar and seeks to prevent its competitors from devaluing their currencies. Treasury Secretary Scott Bessent’s remarks suggest that the White House favors maintaining the stability of the US dollar rather than pursuing its strengthening. This perspective helps explain the consolidation of the EURUSD pair, even in the context of the divergence in monetary policy between the Fed and the ECB. The upcoming US jobs report might not significantly impact the major currency pair.
Scott Bessent’s view is that trade imbalances are partly related to exchange rates, which in turn are shaped by monetary policy. While this viewpoint is understandable, it is crucial to recognize that reducing interest rates is arguably the primary tool available to economies engaged in trade wars. The US has emerged as the clear winner in this scenario, while other nations have been compelled to devalue their currencies to mitigate the adverse effects of tariffs.
This shift in perspective marks a significant departure from long-standing assumptions. Historically, central banks have been hesitant to deviate from the Fed’s policies, operating in a synchronized manner. However, the Fed has now put the cycle of monetary expansion on pause while other regulators are cutting rates. The Bank of England has reduced the interest rates, with indications of further rate cuts, while Banxico reduced borrowing costs by 50 basis points. Markets anticipate further monetary easing from the ECB in 2025.
Market Expectations on Interest Rates
Source: Financial Times.
In most cases, such differences in the regulators’ plans would result in a swift rally in the USD index. However, the White House favors a stable US dollar. The markets are attempting to discern Donald Trump’s policy intentions, which are currently eclipsing the Fed’s actions. To a certain extent, the Fed is waiting for the situation to clarify.
The primary uncertainty pertains to whether the US President possesses a well-defined strategy to significantly impact financial markets or if his actions are more erratic and improvisational. Current indications suggest a strategic approach, though the history of tariffs against Mexico and Canada offers a contrasting perspective.
This has led to a period of consolidation in the EURUSD pair. However, the upcoming US jobs report may provide further clarity. The apparent contradictions in the data, along with the policies of Donald Trump, may constrain the market’s reaction. The most significant corrections since 2009 are anticipated. The January figures may reflect the impact of the California fires and updated population estimates.
Employment Revisions in US
Source: Bloomberg.
Daily EURUSD Trading Plan
It is clear that the EURUSD pair is about to witness significant fluctuations. A risky strategy suggests selling the pair against robust data on a breakout of the support level of 1.035. However, the pair may rebound from 1.029–1.030. Meanwhile, long trades can be opened at 1.041, but the pair may fail to break through the resistance area of 1.0425–1.0440.
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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