The US administration is using a carrot-and-stick policy that has become increasingly predictable over time. Traders have learned to buy when the conflict escalates, betting that it will de-escalate shortly. Let’s discuss this topic and make a trading plan for the EURUSD pair.
The article covers the following subjects:
Major Takeaways
- The Middle East has proven the effectiveness of the Trump trade.
- Investors are returning their attention to tariffs.
- The US dollar is becoming a funding currency.
- Long trades on the EURUSD pair can be opened on a breakout of 1.1625.
Weekly US Dollar Fundamental Forecast
When Donald Trump started his second term as US President, his policies were widely regarded as unpredictable. Some people, including Jerome Powell, who insists on keeping interest rates low, still believe this to be true. However, the US administration’s policy is actually quite straightforward, and events in the Middle East have proven this.
The rapid transition from airstrikes on Iran to a ceasefire demonstrated Donald Trump’s unconventional approach. Both enemies and allies were affected. Investors adapted to the US President’s tariff policy. They bought the S&P 500 and the EURUSD pair on a decline and sold Brent crude oil as its price rose. This is indeed very similar to how the White House wages trade wars. However, media interest in these wars has declined significantly due to events in the Middle East.
Mentions of Trade Wars and Geopolitical Agenda in Media Reports
Source: Bloomberg.
The end of the 12-day war between Israel and Iran will reset everything. Time is running out, and the 90-day tariff delay is coming to an end. The European Union is preparing $116 billion in retaliatory sanctions if trade negotiations with the US fail and the 50% tariff becomes a reality. Donald Trump is likely preparing to strike back as well. His response will surely be devastating, but it will end in retreat. This is the US President’s tactic, and traders need to be ready to buy the dips.
The question is whether the US dollar will regain its link to stock indices. Will they rise together because of American exceptionalism, or will they fall as part of a “sell America” strategy? Due to the greenback’s reduced volatility, carry traders are increasingly using it as a funding currency. In 2025, the effectiveness of carry trades involving the US dollar and a basket of emerging market currencies exceeded 8%. By comparison, transactions involving the yen, euro, and franc yielded +2.6%, -3.3%, and -2.2%, respectively.
Morgan Stanley and Goldman Sachs point to increased demand for the euro on Forex, reflected in the growth of the exchange rate of one currency against another. These are known as cross-currency basis swaps. An increase in these swaps on the EURUSD pair supports the single currency.
USD Index Performance and Cross-Currency Swaps on EURUSD
Source: Bloomberg.
Meanwhile, the question of capital flows from North America to Europe and Asia remains unresolved. According to Goldman Sachs, non-residents purchased US securities worth $31 trillion over the past decade. If this capital returns to its home countries due to Donald Trump’s policies, the US dollar will weaken considerably.
Weekly EURUSD Trading Plan
In these conditions, buying dips in the EURUSD pair remains a relevant strategy. At the same time, if the pair settles above the resistance level of 1.1625, long positions can also be considered.
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
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance broker. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2014/65/EU.
According to copyright law, this article is considered intellectual property, which includes a prohibition on copying and distributing it without consent.
