Donald Trump’s reference to import duties in his inaugural address was not intended to cause any significant fluctuations in stock indices. The President is well-informed and aware of current economic trends. Meanwhile, the US dollar remains resilient. Let’s discuss these topics and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- Trump is considering a 10% tariff on imports from China.
- The duties will reinforce the bullish drivers of the US dollar.
- Protectionism is the main vector of the White House policy.
- Short trades can be opened once the EURUSD pair increases to 1.047 and 1.054.
Weekly US Dollar Fundamental Forecast
Tariffs may be delayed but not ruled out entirely. President Donald Trump’s decision not to jolt the stock market suggests a deliberate approach to policy implementation. This is further evidenced by the President’s recent remarks regarding 25% tariffs on imports from Mexico and Canada and 10% on those from China, effective from February. If these tariffs are implemented, the EURUSD pair will likely resume its downtrend.
Following the USD index’s 7% rally since September, investors are grappling with the question of whether Donald Trump’s protectionist policies have been fully reflected in the USD exchange rate. Morgan Stanley voiced skepticism in this regard, while Bank of America expressed a contrary view, anticipating that concerns over broad import duties will bolster the greenback. Even if these tariffs are postponed, import duties imposed on other countries are expected to remain a pivotal element of the White House’s policy agenda.
Average Rate on All US Imports
Source: Financial Times.
Brown Brothers Harriman prefers to set tariffs aside and believes that the US dollar will continue to strengthen. Import duties will only add to the factors that have been driving the USD index higher.
Notably, the US dollar is a safe-haven asset. It strengthens thanks to increased volatility, as evidenced by the rally on the back of a spike in the US trade policy uncertainty index. In fact, uncertainty has not disappeared. Investors have adopted a more relaxed stance, likely due to the absence of universal tariffs on inauguration day.
US Dollar Performance and US Trade Policy Uncertainty
Source: Bloomberg.
Indeed, traders should look far beyond tariffs, considering the implications of Donald Trump’s policies, which are likely to be pro-inflationary. Fiscal stimulus increases spending, while deportations lead to labor shortages and higher wages, and import duties disrupt supply chains. The US Fed will have to postpone further rate decisions for longer.
Other concerns appear to be more speculative. The recent disclosure by Bloomberg regarding the US administration’s plans to strengthen currency controls has led to rumors about the potential expansion of the list of manipulators. However, it is anticipated that the US will force other countries to strengthen their national currencies against the greenback. At the same time, trade wars should lead to the devaluation of currencies to offset the negative impact. In my opinion, the US dollar has no cause for concern.
Weekly EURUSD Trading Plan
Despite his recent comments, it appears that Donald Trump has not abandoned his plans to impose tariffs. Moreover, he is preparing the markets for their introduction. As a result, any upward movements in the EURUSD exchange rate are likely to be short-lived. If the price breaks through the resistance level of 1.0445, one can open more long trades, adding them to the ones initiated at 1.0335. However, traders should expect a trend reversal near 1.047 and 1.054.
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
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
