It seemed that if Trump’s tariffs were deemed illegal, the EURUSD pair would be able to resume its upward trend. However, the euro has encountered a set of headwinds, while the US administration has room for maneuver at its disposal. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- US tariffs remain in force.
- France is preparing for snap elections.
- The market anticipates significant turbulence in September.
- Long trades can be opened on the EURUSD pair as long as it remains above 1.165.
Weekly US Dollar Fundamental Forecast
If some believed that the decision of the Federal Appeals Court had placed Donald Trump and the US dollar in a difficult position, they were incorrect. The US administration has at least five pieces of legislation that can be cited to justify the tariffs. The division among the judges, with four out of eleven in favor of the legality of the tariffs, suggests potential for a successful appeal to the Supreme Court. As expected, following an initial rally, the EURUSD pair experienced a slight decline.
The return of billions of dollars would hurt the US budget and economy. The country is already on the path to a fiscal cliff. As Congress returns from its summer recess, it must address the pressing challenge of averting a government shutdown by the end of September. However, the Federal Court of Appeals has granted the US administration an extension until mid-October. In addition, references to other laws may be advantageous for Donald Trump. At the same time, the growing uncertainty in trade policy is providing support for EURUSD bears.
Customs Duties Collected from US Imports
Source: Wall Street Journal.
The euro is also affected by the deteriorating situation in France. The far-right National Rally party believes that early parliamentary elections are the only way to resolve the current crisis. The resignation of François Bayrou’s government is no longer sufficient for them. The gap between French and German bond yields, a critical risk indicator in Europe, is widening, prompting concern from the ECB.
According to Christine Lagarde, she is closely monitoring events in her home country. The yield on French bonds is now comparable to the yield on Italian bonds, which has not been the case for several quarters. Markets are beginning to speculate on the potential implications of the ECB’s concerns. Should it intervene in the debt market, this will be perceived as a monetary stimulus, potentially weakening the EURUSD pair.
France-Germany Bond Yield Differential
Source: Bloomberg.
After a summer lull, the markets are beginning to prepare for a storm. The verdict of the Federal Court of Appeals has triggered significant market fluctuations, and by the end of the first week of September, the direction of the EURUSD pair will be determined by the US employment report. The upcoming schedule includes a vote of no confidence in François Bayrou’s government, the release of US inflation data, and the Fed meeting. The range of options is extensive, from maintaining the federal funds rate at its current level to reducing it by 25 or 50 basis points.
Weekly EURUSD Trading Plan
The impending financial storm has led to a sense of caution among investors. The market has overestimated the impact of the Federal Appeals Court’s verdict and is awaiting US employment data. The 1.165 level is regaining its status as the key threshold for the EURUSD pair. If bulls manage to keep the price above this mark, the uptrend will likely resume. Against this backdrop, it is advisable to refrain from entering the market or to take advantage of market pullbacks to open long positions.
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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