To put it simply, the U.S. dollar is rising because of fear that Trump’s policies might spur inflation at best and trigger an all-out trade war at worst. In addition, the U.S. economy is outperforming most of its peers so the Fed is highly likely to ease its monetary policy at a much slower pace compared to other countries. Indeed, a recent Bloomberg survey forecasts a modest 1% growth for the Euro Area this year, slightly better than the 0.8% projected for 2024 but well below the long-term average of 1.4%. It is no surprise that the market continues to expect three or four 25-basis point rate cuts by the European Central Bank (ECB) in 2025 compared with just one or two by the Fed over the same period. In these circumstances, it is hard to expect EURUSD to rebound substantially from its recent lows. ‘I think there is more than a 50% chance that EURUSD will decline towards parity at some point this year and may even temporarily drop below the 1.0000 mark’, comments Kar Yong Ang, adding that Eurozone faces a number of structural challenges ranging from high energy costs and deindustrialization to geopolitical tensions and fiscal instability.
As for the DXY, its rally has started to show some signs of exhaustion lately. Technically, there is a bearish divergence between the DXY price and the Relative Strength Index (RSI). Furthermore, fundamentally, a lot of bullish factors have been already priced in and bulls lack new impulses for the next move higher. ‘I think the market has overly priced in all the dollar-related positives and the greenback actually looks slightly overvalued at this point. I think betting on its continuing appreciation is risky’, says Kar Yong Ang. Indeed, in some respect, the market has factored in a less likely scenario—i.e., that Donald Trump will impose blanket tariffs and destabilize global trade. While such a scenario is certainly possible its probability is relatively low. For example, Bloomberg reported that the U.S. could take a measured approach towards tariffs. ‘The market is forward-looking. Just like it started to price in Trump’s victory well before the elections, so it may now begin to price out the underlying bullish expectations and anticipate a downturn in a classical “buy the rumour sell the news” fashion’, concludes Kar Yong Ang, a financial market analyst at Octa Broker.
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Octa
Octa is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services used by clients from 180 countries who have opened more than 52 million trading accounts. To help its clients reach their investment goals, Octa offers free educational webinars, articles, and analytical tools.
The company is involved in a comprehensive network of charitable and humanitarian initiatives, including the improvement of educational infrastructure and short-notice relief projects supporting local communities.
In the APAC region, Octa received the ‘Best Trading Platform Malaysia 2024’ and the ‘Most Reliable Broker Asia 2023’ awards from Brands and Business Magazine and International Global Forex Awards, respectively.
