FOREX Fundamental analysis for EUR/USD on January 29, 2025
The history of financial markets clearly shows that even experienced participants are not immune from the repetition of previous miscalculations. The most common losses of traders are passed down from generation to generation. At the beginning of Donald Trump's first presidential term, experts predicted an acceleration of US economic growth and increased inflationary pressures. However, the reality turned out to be different - inflation remained moderate, and the slowdown in the economy forced the Fed to reconsider its course and begin lowering interest rates in 2019. Today's "bears" on EUR/USD risk treading on the same rake if they underestimate the possible consequences of the new policy of the White House.
Protectionism and the economy: the risk of a repeat of the 2019 scenario
In 2018-2019, the tariffs introduced were relatively mild compared to those currently under consideration. However, even then, the main impact fell on the US industrial sector, which, contrary to expectations of employment growth, faced job cuts.
Investment activity has slowed, output has fallen, and real median household incomes have declined for the first time in five years. According to some estimates, the total losses of American consumers amounted to about $8 billion.
The slowdown in the economy forced the Fed not only to revise its GDP growth forecasts, but also to lower the federal funds rate in order to support business activity.
How will the macroeconomic picture change?
Former Commerce Secretary Wilbur Ross notes that Trump remains committed to protectionist policies, but the economic environment has changed significantly. If the Fed struggled with low inflation in the past decade, today CPI and PCE are already at elevated levels. The introduction of large-scale import tariffs could further exacerbate inflationary pressures.
However, the Trump administration is offering alternative ways to deal with rising prices. Among them are measures to reduce the cost of oil by increasing production from OPEC+ and American shale companies, as well as large–scale cuts in government spending. Already, many officials have been asked to voluntarily leave their posts with pay for 8 months. The White House expects 5-10% of civil servants to respond to such an initiative, which will reduce budget expenditures by $100 billion.
However, these measures also carry certain risks. Control over oil prices remains outside the competence of the White House, and sanctions pressure on Russia may lead to an increase in quotations of "black gold". The reduction of the public sector can trigger a decline in GDP. In conditions of high uncertainty, investors continue to move into the dollar, providing its support for 17 consecutive weeks.
US Dollar forecast: what should the markets expect?
Forex trading methods are based on the principle that the dollar will remain strong until there are convincing arguments to the contrary. However, if Trump's economic policy does lead to a slowdown in GDP growth, the US currency may come under pressure, and the USD index will enter a sell-off phase.
In the short term, investors' attention is focused on the upcoming Fed meeting. DoubleLine Capital analysts consider it one of the most predictable in recent years, as the regulator is likely to leave the rate unchanged, trying to preserve room for further maneuver.
While EUR/USD is trading above 1.0415, it makes sense to be cautiously optimistic about holding bullish positions. However, the macroeconomic risks associated with US protectionism can quickly change the balance of power in the market.
EUR/USD technical analysis
EUR/USD is trying to recover from the support area (A) of 1.0441 - 1.0432. If successful, we can expect a continuation of the short-term uptrend with the first target at 1.0482 and the second at 1.0533.
If the support area (A) is nevertheless broken down during trading, the correction will continue to the trend line of 1.0395 - 1.0381. After reaching this zone, we will also consider purchases with the main goal in the high area on January 27.
To change the direction of the trend and subsequent sales, the bears need to break down the 1.0381 mark. In this case, from the next trading day, it will be possible to consider selling the pair with a target at the lower target zone of 1.0257 - 1.0229.