Almighty US Dollar Poses Risks for Global Economy. Forecast as of 05.02.2025

Weekly US Dollar Fundamental Forecast

In the absence of tariffs, the EURUSD pair has recovered slightly, closing the February gap. However, not all market participants believe that the downtrend has reversed. It is likely that Europe will be the target of further pressure from Donald Trump. Given Trump’s unconventional tendencies, market turbulence is likely to become a frequent occurrence, which may prove beneficial for the US dollar. Despite the absence of import duties, EURUSD bears will likely continue to drag the major currency pair lower.

Following the delay in tariffs against Mexico and Canada, markets have come to recognize that the White House’s communication style may be more concerning than its actions. Even the one-day postponement of the conversation between Donald Trump and Xi Jinping did not alter the outlook of US stock traders. The S&P 500 rally has provided support to EURUSD bulls, who aim to push the euro back above 1.04.

In response to China’s retaliatory tariffs, Trump said that the US would prosper in the face of competition from China and other global markets. The US appears to be the leading contender in the global trade war, as its exports as a percentage of its GDP are significantly lower than those of its competitors.

Share US Exports to G20 Countries

Despite the market’s growing confidence that President Trump’s tariff threats are intended to secure preferential treatment for the US rather than to impose levies on other countries to fund US government spending, the future remains uncertain. The period of import duty postponement until March 1 is brief, and during this time, the White House may well request further concessions.

The US is pursuing its own interests, and Trump’s perspective on these interests is clearly misguided, which poses a threat to other countries and creates a favorable environment for the US dollar. As a result, the risks of a reversal in the greenback have reached their highest level in seven months.

US Dollar Risk Reversal

President Donald Trump is committed to maintaining tariffs as a means of achieving several key objectives, including balancing trade, stimulating domestic production, and increasing US revenues. He views tariffs as an effective tool to achieve these goals. The significant trade deficit of the United States is attributed to the fact that other countries provide more value than they receive from the US. One potential solution to this issue is a substantial weakening of the US dollar, a policy that the US president has expressed interest in pursuing but has also shown reluctance to do so in the past.

Weekly EURUSD Trading Plan

A gradual shift in market sentiment from fear to greed may trigger an upward spurt in the EURUSD pair. In this case, if the resistance level of 1.039 is broken through, one may consider opening long trades. However, it is important to maintain a balanced perspective and not to become overly optimistic if the broader economic outlook does not support a bullish scenario for the euro. Therefore, a decline in the EURUSD pair below 1.0355 could provide an opportunity to open short positions.

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