This week, our focus remains on EUR/USD, as we anticipate continued volatility, especially with President Trump reinforcing tariffs on multiple countries. The dollar has already shown signs of weakness, as mentioned in previous analyses. Amid economic uncertainty, investors are turning to gold (XAU/USD), which continues to break all-time highs. On the weekly timeframe, gold is pushing through key resistance levels with no immediate signs of a pullback.

The U.S. economic landscape remains a mix of resilience and growing concerns. While GDP grew by 2.8% in 2024, unemployment remains low at 4.0%, and wages have increased by 4.1%, exceeding expectations. However, fiscal pressures are mounting, with a reported $838 billion deficit in the first four months of the fiscal year and projections of nearly $2 trillion in overspending. Trump’s suggestion of a potential selective U.S. debt default has further raised concerns about financial stability and investor confidence.

Key Economic Events This Week:

Major economic releases that could impact forex markets include interest rate decisions, employment reports, inflation data, and sentiment indicators. Central bank policies from the RBA, BoE, and FOMC will influence currency strength, while inflation and labor data will shape future monetary policy. Some of the key red-folder events to watch:

• AUD – RBA Interest Rate Decision, Unemployment Rate, Employment Change, Judo Bank Services & Manufacturing PMI
• GBP – Unemployment Rate, Claimant Count Change, Inflation Rate, Retail Sales, Gfk Consumer Confidence, S&P Global PMI
• EUR – ZEW Economic Sentiment Index, Business Climate Indicator, Business Confidence, HCOB Services & Manufacturing PMI
• CAD – Inflation Rate, CPI Median & Trimmed-Mean, Retail Sales Ex Autos & Total, YoY and MoM figures
• USD – NY Empire State Manufacturing Index, Building Permits, FOMC Minutes, Initial & Continuing Jobless Claims, S&P Global PMI, Michigan Consumer Sentiment, Existing Home Sales
• JPY – Balance of Trade, Inflation Rate

Fundamental Analysis: The USD Outlook

The U.S. dollar faces both bullish and bearish factors this week:

Potential USD Strength:

• Higher Interest Rates: If the Federal Reserve continues to maintain or raise rates, the USD could strengthen as higher yields attract investors.
• Resilient Labor Market: Strong employment figures and rising wages support the economy and boost USD confidence.
• Tariffs & Protectionism: Increased tariffs may lead to a short-term boost in demand for U.S. goods, potentially supporting the dollar.

Potential USD Weakness:

• Rising Debt & Fiscal Concerns: The $36 trillion national debt and widening deficit raise risks for the U.S. economy and investor sentiment.
• Trade War Risks: Retaliatory tariffs could slow global trade, reducing foreign demand for the USD.
• Debt Default Worries: Any suggestion of a selective default on U.S. debt could trigger market instability and capital outflows.

Market Impact for Forex Traders:

• Short-Term Volatility: Expect price swings with key data releases, especially inflation reports and job figures.
• Long-Term Uncertainty: The balance between economic growth, debt issues, and trade conflicts will shape the USD’s direction.
• Safe-Haven Demand: Despite risks, the USD remains a global reserve currency and may see inflows during broader market instability.

Technical Analysis: EUR/USD

EUR/USD is maintaining bullish market structure, forming higher highs and higher lows on the 4-hour timeframe. Price has broken out of consolidation and is showing signs of continuation. While pullbacks may occur as markets adjust to tariffs, the next key level of interest is 1.05361, where price may face resistance.

Traders should watch for buying opportunities on dips while also remaining cautious of potential pullbacks. Risk management is key, as volatility could present both lucrative opportunities and heightened risks.

Final Thoughts:

This week presents strong trading opportunities, particularly in EUR/USD and XAU/USD, given ongoing economic shifts. Stay informed, stick to your strategy, and manage risk effectively in these market conditions.