Forex Analysis & Reviews: 27.05.2025 - The Dollar Is Getting Used...

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InstaForex - Official partner of Dragon Racing

27.05.2025 08:39 PM

The Dollar Is Getting Used to Defeat

Everything has its limits—including Donald Trump's negotiation strategy. The longer his policy of threats followed by postponements continues, the less seriously markets take his actions. His warnings are no longer seen as cause for alarm. Instead, one should act with composure and seize the opportunities arising from the erosion of trust in the U.S. dollar. That is roughly what Europe intends to do, allowing EUR/USD to regroup and prepare for a new offensive.

Impact of U.S. Trade Policy on Tariff Rates – Chart Overview

Before the U.S. president began threatening to raise tariffs on the EU to 50%, Brussels had proposed lowering import duties on many goods and collaborating on global challenges, mutual investments, and strategic procurement. But the White House wanted more and chose to escalate the conflict.

The European Union made it clear it is willing to act more swiftly. However, according to Bloomberg sources, any unilateral U.S. demands that compromise the bloc's autonomy remain unacceptable. Europe intends to maintain its position and continue efforts to strengthen global confidence in the euro. The repeated use of threats without follow-through has reduced their impact.

At first glance, broad import tariffs would deepen Germany's recession. However, U.S. GDP would also shrink by about 2 percentage points, and prices would rise by 1 percentage point—an outcome that is hardly favorable to Donald Trump. The pain felt by Americans is reflected in the stock market, and the president is far from pleased with the drop in the S&P 500. Once the broad index began to fall sharply, the Republican leader threw it a lifeline in the form of a 90-day delay.

Tariff threats and fiscal issues do not add appeal to the dollar—and EUR/USD bulls may be able to capitalize on this. According to Christine Lagarde, U.S.-initiated changes to the global trade system could create a global moment for the regional currency. Europe has the ability to take control of its own future by increasing the euro's role in transactions and foreign currency reserves. The euro has already achieved one major success.

Thanks to Germany's current account surplus reaching $248.7 billion in 2024, the country has, for the first time in 34 years, surpassed Japan to become the world's largest creditor.

Dynamics of Net Foreign Assets: Germany, Japan, and China – Chart Overview

These developments help explain why the euro currently resembles a safe-haven asset more than the U.S. dollar. Capital inflows for both trade and investment into the eurozone, coupled with declining confidence in U.S. Treasuries and the dollar itself, are powerful drivers of the EUR/USD rally.

From a technical standpoint, on the daily chart of the main currency pair, the first attempt to break through the upper boundary of the fair value range at 1.1200–1.1395 ended in failure for the bulls. However, a successful second attempt would allow traders to add to existing long positions on EUR/USD. The nearest support is found at 1.1325.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.