The US tends to label its adversaries as allies and its partners as freeloaders. A sudden and significant shift in policy can create uncertainty and potentially diminish the perception of American exceptionalism. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The White House intends to impose a 25% duty on auto imports.
- Reciprocal tariffs will not be as formidable as expected.
- The EU is preparing a retaliation package.
- The EURUSD pair can be purchased at the market price.
Weekly US Dollar Fundamental Forecast
US President Donald Trump has announced his plans for America’s Liberation Day, which represent a continuation of the protectionist policies he has initiated since inauguration day. The US will adopt a softer stance, which will likely take aback those who were expecting harsh tit-for-tat tariffs. However, the 25% duties on car imports will remain in place. This news should have caused significant turbulence in the financial markets, but after a brief decline, the EURUSD pair recouped its losses.
Notably, approximately half of all cars sold in the US are imported. The introduction of tariffs, amounting to 25% in addition to the existing 2.5%, will result in a cost increase for American consumers. The question remains whether the objective of penalizing other countries for their role in diminishing US employment and economic opportunities is proportionate to the chosen approach. The point remains debatable.
US Imports of Automobiles
Source: Bloomberg.
The disruption of supply chains will likely spur inflation and slow GDP growth. In the so-called stagflationary scenario, the Fed will be compelled to maintain elevated interest rates, which will further cool the US economy. This, in conjunction with political turmoil, will trigger capital flight from the US. The notion of American exceptionalism may become obsolete in this environment, and the US dollar may face strong headwinds.
The question remains: How will the tariffs affect the eurozone economy? According to the EU, reciprocal duties on imports are expected to be double-digit. Brussels is ready to unholster its most powerful weapon, the Enforcement Regulation, a trade toolkit developed during Donald Trump’s first term as president. In addition to retaliatory tariffs, the EU may consider targeting its stockpile of US government debt, US technology and services companies, and financial businesses.
While the EU’s options for retaliating against goods are constrained, the significant €109 billion deficit in trade in services positions Brussels to wield considerable influence. The question remains whether Brussels will exercise this option.
US and EU Foreign Trade
Source: Bloomberg.
The response of other countries will be a key factor in the situation. Japan is prepared to consider countermeasures in response to the 25% US tariff on automobiles. It is essential for Europe, Asia, and the rest of North America to collaborate in order to counteract the current state of fragmentation. This coordinated approach is crucial in countering the US protectionist policies.
Germany’s shift toward fiscal stimulus measures, in the context of the US emphasis on fiscal restraint, suggests the EURUSD pair may embark on an upward trajectory. The extent of the correction will hinge on the repercussions of the US tariffs on the Eurozone economy. If it remains resilient, the correction will be insignificant.
Weekly EURUSD Trading Plan
Given the current state of the market, specifically, the inability of EURUSD bears to push the quotes to the support level of 1.0715, some consider purchasing the euro at the market price. However, the decision to enter the market now is ultimately personal. Some opt to wait until April 2, while others choose to take action.
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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