The market has a long memory. Whenever comparisons are made to the 1985 Plaza Accord, expectations of coordinated intervention tend to spark selling of the US dollar—not only against the Japanese yen, but across a broad range of global currencies. Let’s examine the situation and develop a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- Fed officials are ready to raise rates.
- The US has returned to diplomacy in the Middle East.
- Currency interventions have weakened the dollar.
- Long positions can be increased if the EUR/USD pair breaks through 1.1540.
Weekly Fundamental Forecast for Dollar
The Fed’s hawkish rhetoric is no longer enough to support the US dollar as Washington shifts the battleground from the Middle East to the currency market, even as US stock indices continue to post gains. Coordinated intervention by the US and Japan to strengthen the yen evoked memories of the 1985 Plaza Accord, which triggered a sharp decline in the US Dollar Index. This time, the greenback’s slide accelerated as investors unwound net long positions at the fastest pace since 2015, sending the EUR/USD pair on a roller-coaster ride.
Speculative Positions on US Dollar
Source: Bloomberg.
The end of July turned out to be very turbulent. Three dissenting Fed members caused investors to doubt that Kevin Warsh could delay the start of the monetary tightening process. One man is no army—even if that man is the Fed chair. Neel Kashkari, Beth Hammack, and Lorie Logan unanimously argued that it was better to raise rates gradually than to resort to aggressive monetary tightening, which would be painful for the economy.
Other FOMC members echoed this hawkish stance. For example, Tom Barkin said there could be grounds to reverse the three rounds of monetary easing introduced at the end of 2025 if inflation resumes its upward trajectory. Hawkish remarks from Fed officials pushed Treasury yields higher, yet the US dollar still posted its worst monthly performance since April. The divergence between rising Treasury yields and a weakening greenback suggests eroding confidence in current economic policies. Such a combination is more commonly associated with emerging markets than with the world’s reserve currency.
US Dollar Performance
Source: Bloomberg.
Then, news broke that the US was participating in currency interventions coordinated with Japan to strengthen the yen. Donald Trump called the joint intervention in the Forex market a sign of friendship, and Treasury Secretary Scott Bessent stated that the US would once again enter the currency market without hesitation. The Nikkei reported that they sold dollars, but the Financial Times reports that New York banks sold euros.
Formally, this will at least somewhat support the policy of a strong dollar. However, at some point the US will be forced to buy the EUR/USD pair to replenish its depleted reserves.
Pressure on the greenback has been driven by rising stock indices and Donald Trump’s decision to suspend strikes against Iran. The US administration wants to participate in brokered negotiations with Tehran, but Iran’s high demands—including transit fees for the Strait of Hormuz and the lifting of sanctions—cast doubt on how successful they will be. Nevertheless, oil prices are falling, and the US dollar is following suit.
Weekly Trading Plan for EUR/USD
The breakout above the 1.1370–1.1470 trading range, followed by a successful pullback to its upper boundary, provided an opportunity to add to long positions on the EUR/USD pair. Resistance levels of 1.1540 and 1.1585 are within reach.
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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