Capital outflow from North America to Europe, the cooling of the US economy, and the imminent resumption of the Fed’s rate cut cycle are creating a solid foundation for an uptrend in the EURUSD pair. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Capital outflows from the US to Europe are supporting the euro.
- Donald Trump will not abandon his tariff policy.
- The Fed plans to resume its monetary expansion cycle.
- Long trades on the EURUSD pair can be increased if the price breaks through 1.14.
Weekly US Dollar Fundamental Forecast
If you would like to know what will happen to currency rates on the Forex market, focus on the current trends in financial flows. In 2025, eight European indices were among the top 10 fastest-growing stock indices worldwide. Since the beginning of the year, the EuroStoxx 600 has outperformed the S&P 500 by 18 percentage points in US dollar terms. RBC Wealth Management has reported a significant increase in inquiries about Europe over the past two months, stating that this level of interest has not been observed in the previous decade. According to estimates by UBS, investors are expected to redirect $1.4 trillion from US assets to European assets over the next five years. Given these developments, the EURUSD pair has rallied by almost 10%.
World’s Top-Performing Stock Indices in 2025
Source: Bloomberg.
The US administration’s policies have triggered significant changes in financial markets. Investment funds are migrating from the United States to Europe and Asia. The result is a weakening of the US dollar against major world currencies. According to Morgan Stanley, this is only the beginning. The US economy’s current challenges and the subsequent reduction in the federal funds rate will result in a 9% decline of the USD index to 91 over the next 12 months. JP Morgan forecasts that the EURUSD pair will rise to 1.25 in 2026.
If anyone believes that the US Court of International Trade’s ruling on the illegality of tariffs will temper the aggressive stance of the US administration, they are mistaken. It is Donald Trump’s intention to raise tariffs on steel and aluminum imports from 25% to 50%. The US administration is exploring legislation that would empower the president to impose tariffs at his discretion. There is also an appeal that could be won in the Supreme Court.
It appears that President Trump’s actions are unrelenting, which is unfavorable for the US economy and the greenback. Asset managers and hedge funds have been selling the US dollar for some time, but their positioning is far from extreme levels. Against this backdrop, the EURUSD pair has room for further growth.
Speculative Positions on US Dollar
Source: Bloomberg.
From a strategic standpoint, it is reasonable to anticipate a slowdown in US GDP growth and the resumption of the Fed’s monetary expansion cycle. According to FOMC member Christopher Waller, the surge in inflation caused by tariffs will be temporary. Notably, consumer prices are not expected to remain at their current levels. In contrast to the early 2020s, the current strength of the labor market and fiscal stimulus do not appear to be causing economic overheating.
Despite the challenges posed by trade wars, Europe can hold its head high, boasting not only political stability but also a shift away from fiscal consolidation. The European Central Bank’s decision to reduce its deposit rate to 2% at its Governing Council meeting on June 5 is widely regarded as a crucial support for the eurozone economy. The ECB’s recent action is not expected to have a significant impact on the EURUSD pair. However, the US labor market’s freezing in May could create significant headwinds for the US dollar.
Weekly EURUSD Trading Plan
Given this context, if the EURUSD pair breaches the resistance level of 1.14, it could create a lucrative opportunity to form long positions, adding them to the ones opened at 1.1225.
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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