With the release of US labor market statistics for December and renewed fears of pressure from the US government on the Federal Reserve, the EUR/USD pair found a bottom as investors followed the “buy the rumor, sell the news” principle. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The US labor market has stabilized.
- The Fed may extend its pause until June.
- The US administration intends to fire Jerome Powell.
- Short trades on the EUR/USD pair can be considered on a rebound from 1.69 and 1.171.
Weekly US Dollar Fundamental Forecast
Who was the one who lost their patience? Was it Jerome Powell, who did not respond to threats from the US administration for a long time and has now spoken out about political pressure on the Fed? Or was it Donald Trump, who is eager to turn the central bank into his tool by reshuffling the FOMC? The markets have interpreted the US president’s haste as a sign that he still wants to control the Fed. If the Fed’s independence is compromised, the US dollar will inevitably collapse.
The only pressure the US currency faces is interest rates. They are too high. That was Donald Trump’s response to Jerome Powell’s extraordinary statement. Powell said that the lawsuit for alleged violations in the renovation of the Fed building was nothing more than intimidation and political pressure on the US central bank. The US administration wants decisions on easing monetary policy to be made based on political considerations rather than data.
Central Banks’ Interest Rates
Source: Bloomberg.
According to Bloomberg, the federal funds rate will fall more than the futures market expects. At the same time, the divergence in monetary policy between the Fed and other central banks allows investors to maintain a bearish outlook on the US dollar.
The derivatives market expects two rounds of Fed monetary expansion, with the timing of the next move shifting from April to June following the US labor market data. Employment rose by 50,000, and unemployment fell to 4.4%. During 2025, the US economy added 584,000 jobs, or about 49,000 per month. With the exception of the last two recessions, last year was the worst in two decades.
Market Expectations for Fed Interest Rate
Source: Bloomberg.
However, mass deportations and migration restrictions have reduced the workforce, keeping unemployment low. In other words, the United States does not need to create more than 50,000 jobs per month for its economy to perform well. This fact should prevent the Fed from lowering interest rates for at least six months. A prolonged pause in the cycle of monetary policy easing will likely set the stage for a continued correction in EUR/USD quotes.
Moreover, Goldman Sachs is optimistic about the US economy, and the Supreme Court is ready to rule on the legality of tariffs on January 14. According to the bank, GDP will expand by 2.5% in 2026, higher than the Bloomberg consensus forecast of 2%. The cancellation of tariffs is equivalent to a fiscal stimulus that will further boost gross domestic product.
Weekly EURUSD Trading Plan
Thanks to the “buy the rumor, sell the news” effect and renewed fears that the Fed might lose its independence, the EUR/USD pair rebounded from the bottom. At the same time, short positions can be opened on a rebound from resistance levels of 1.169 and 1.171.
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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