The uncertainty of White House policies affects the U.S. dollar. It either falls alongside American stocks or fails to strengthen amid their rallies. Why is this happening? Let’s discuss it and make a trading plan for EUR/USD.
The article covers the following subjects:
Major Takeaways
- The dollar has set an anti-record since the inauguration.
- Non-residents resume currency risk hedging.
- GDP and labor market data will determine the greenback’s fate.
- A rise in EUR/USD above 1.14 will be a reason to buy.
Weekly Fundamental Forecast for Dollar
U.S. stocks have nearly recovered all their April losses, yet EUR/USD refuses to correct. What’s going on? Could it be that Donald Trump’s reluctance to fire Fed Chair Jerome Powell and the White House’s claims of progress in trade talks have restored the U.S. dollar’s status as a safe-haven asset? So quickly? I believe the issue runs deeper.
For several years, foreign investors had a foolproof strategy: buy the greenback and invest it in U.S.-issued stocks. There was no need to hedge such positions — thanks to American exceptionalism, non-residents could have double profits from both a stronger dollar and a rallying S&P 500. Donald Trump’s return to the White House hit them with a double blow.
During the first 100 days of the Republican’s presidency, the USD index recorded its worst decline in history, surpassing even Richard Nixon’s anti-record from 1973. Bloomberg experts believe the White House’s tariffs will slow down the U.S. economy to 1.4% in 2025. They’ve raised the odds of a recession in the next 12 months from 30% in the previous survey to 45%.
U.S. Dollar Dynamics in the First 100 Days of U.S. Presidents
Source: Bloomberg.
The collapse of the USD index, followed by stabilization amid the White House’s conciliatory rhetoric, has forced non-residents to resume hedging currency risks. Morgan Stanley and Bank of America note growing client demand for such operations, with their share in the overall structure of foreign investment in U.S. stocks steadily increasing.
Dynamics of Currency Hedging Share in Investments
Source: Bloomberg.
Hedging is back in favor on the Forex market, creating obstacles for EUR/USD bears. Indeed, when the S&P 500 rises, non-residents sell the dollar, restoring the decades-long inverse correlation.
Thus, the resilience of EUR/USD during U.S. stock index rallies is not driven by restored confidence in the dollar. The greenback appears vulnerable, regardless of whether the S&P 500 continues its upward march or crashes due to escalating trade conflicts.
It will be interesting to watch EUR/USD’s reaction to U.S. GDP and labor market data. The economy risks slowing from 2.4% to 0.4% due to front-loading of U.S. imports ahead of tariff introductions. If employment growth also loses steam, the chances of a federal funds rate cut will rise. Will this support the greenback alongside the S&P 500? Or will it go back to the classic scenario — falling on expectations of an imminent restart of the Fed’s monetary expansion cycle?
Weekly Trading Plan for EUR/USD
For now, consider buying EUR/USD on a breakout above resistance at 1.14 or selling the pair from 1.131, with a subsequent position reversal if it rebounds from key supports.
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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