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26.05.2025 09:39 AM
Donald Trump Has Never Held Back... (EUR/USD May Resume Its Upward Trend, While #USDX May Decline)

Watching everything unfold in the markets lately makes you want to write a script for a blockbuster in the style of The Godfather. The U.S. president has completely abandoned all formalities and now behaves like a cinematic version of Don Corleone, as portrayed by the legendary Marlon Brando.

Trump has taken complete manual control, as he seems to believe he is in charge of the entire world—a world where the star of "great America" must rise again. He even physically resembles a character from Mario Puzo's works, with similar mannerisms and weight in his voice. It appears he enjoys making major decisions just as politicians and financial markets are trying to take a breather over the weekend. However, the self-proclaimed ruler of the world refuses to let anyone relax.

Once again this weekend, the U.S. President announced that he is delaying the introduction of a 50% customs tariff on goods from the European Union, extending the deadline to July 9. In a post on Truth Social, he said the decision followed a conversation with European Commission President Ursula von der Leyen. The EU chief confirmed the call, describing it as "a good conversation" and noted that much more time is needed "to reach a good deal."

What does this mean? It seems to be a continuation of pressure on EU officials—almost like a scene from a movie. Trump is giving them time to think before making any drastic moves. He continues to leverage his influence over those who permit it.

What about the markets? After a turbulent week marked by increasing fears of a financial crisis in the U.S. due to tensions from the tariff standoff, which significantly affected investor sentiment, the markets are breathing a sigh of relief this Monday. While it's not a complete 90-day pause in the trade war with China, as the saying goes, "In the land of the blind, the one-eyed man is king."

Futures for major U.S. stock indices are rising confidently, which is likely to lead to a positive market opening. Investors and speculators are expected to respond to this news, potentially triggering a renewed rally in the U.S. stock market. However, like the temporary truce, this rally is anticipated to be short-lived.

On this wave of optimism, the dollar will most likely continue to fall almost vertically, with the Dollar Index potentially sliding to 98.00 before a new phase of consolidation begins. As for gold, if it manages to break through the strong resistance level at 3358.50, it may reverse and fall to the previously projected target of 3263.75.

But how long will this wave of positive sentiment last?

Probably not for long. This week, the minutes from the latest Federal Open Market Committee (FOMC) meeting on monetary policy will be published. It's unlikely that the Federal Reserve will signal a readiness to abruptly resume rate cuts. For now, Chair Jerome Powell is showing admirable caution, even though inflation has approached the coveted 2% target, with April's year-over-year figure dropping to 2.3%. However, things could change dramatically if the Q1 GDP report shows a -0.3% contraction. This would mark the first negative reading since November 2022, effectively indicating the start of a recession.

Confirmation of that fact would be a strong argument for the Fed to cut the key interest rate by 0.25% in June to stimulate the national economy. This would undoubtedly trigger increased demand for equities, further dollar weakening, and renewed interest in cryptocurrencies. The probability of this scenario is quite high.

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Forecast of the Day:

EUR/USD

The pair steadily rises due to Trump's announcement to postpone tariff hikes on EU goods in the U.S.-EU trade. This development may continue to support the pair, and if it breaks above 1.1425, it could head toward 1.1530. A potential buy level for the pair could be 1.1432.

#USDX

The Dollar Index is trading below 98.90. There is a high probability of a continued decline, especially if negative Q1 GDP data confirms market fears and prompts the Fed to cut interest rates in June. In this case, the index may fall to 98.00. A potential sell level could be 98.65.

Pati Gani,
Analytical expert of InstaForex
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