FOREX Fundamental analysis for EUR/USD on February 4, 2025
The unexpected turn of events in global markets has left investors guessing — is this an economic strategy or a geopolitical maneuver? The US administration insists that the media misrepresented Donald Trump's signals, but the actions of the White House speak for themselves. Until February 1, the market was convinced that the tariff threats were more political in nature than real action. However, after their official launch, and then an unexpected postponement for Canada and Mexico, investors came to the conclusion that any duties were temporary. Such uncertainty increases the demand for the US dollar as a defensive asset, and the EUR/USD pair has come under pressure again, approaching parity.
Forecasts of leading banks: the euro is on the verge of collapse
Goldman Sachs expects the euro to fall by 8-10% in the event of a full-scale trade war, while Deutsche Bank analysts suggest that even without an escalation of the conflict, EUR/USD will fall to 0.98-0.99. The reason is possible overproduction in China, which will lead to a sharp increase in the supply of cheap goods to Europe, which will increase deflationary risks. Germany, the main exporter of the Eurozone, will face a drop in demand for its products in Asia, which could accelerate the recession in the region.
The situation is aggravated by the fact that the Eurozone economy is barely afloat even without trade barriers. Inflation indicators are slowing down, forcing the ECB to continue its policy of lowering rates. Futures on the money market are already envisaging a reduction in the deposit rate by 83 basis points by the end of 2025. In such conditions, expectations of EUR/USD parity look quite reasonable, and derivatives are already planning to achieve it in the second quarter.
US dollar: a strong player against the background of a weak euro
As you know, a currency pair is always an interaction of two assets. If the euro is weakening, the dollar, on the contrary, is strengthening. Tales of tariffs are driving up inflation expectations, and even the head of the Federal Reserve Bank of Chicago, Austan Goolsbee, a well-known FOMC dove, has spoken about the need for a more cautious Fed policy. He noted that the uncertainty caused by the actions of the White House could lead to a new surge in inflation, which would force the regulator to tighten its rhetoric.
The promotion of the slogan "America first" leads to an increase in the exclusivity of the United States in the global market. This, along with the attractiveness of the dollar as a defensive asset and the divergence of the monetary rates of the Fed and the ECB, contributes to a further decline in EUR/USD.
Trading strategy: betting on strengthening the dollar
It would seem that after the announcement of the postponement of tariffs against Canada and Mexico, the main currency pair should have demonstrated at least some kind of recovery. However, the Bulls were unable to seize the initiative. In such conditions, there is a high probability that the market will continue to move down, contrary to the expectations of the majority.
The attempt to close the gap formed in early February provided an excellent opportunity to increase short positions in EUR/USD from the levels of 1.047 and 1.0415. We continue to adhere to the "bearish" forex trading strategy and sell the pair with targets at 1.012 and parity.
EUR/USD technical analysis
As a result of yesterday's trading, EUR/USD reached the key resistance area of the short-term downtrend of 1.0362 - 1.0348. Today, the pair declined from this area and fulfilled the first target of the "bears" in the area of 1.0286. If sellers manage to break this level down, then the decline is likely to continue with a target at yesterday's low. If the price is fixed below yesterday's low, the next selling target will be the "golden zone" of 1.0165 - 1.0156.
To change the trend and buy EUR/USD, buyers need to break through and consolidate above the 1.0362 mark. In this case, it will be possible to consider long positions with a target at the upper target zone of 1.0514 - 1.0486.