Introduction
President Trump has shaken up the forex market with his plans to impose reciprocal tariffs against countries with unfair trade practices. This announcement has led to heightened volatility in major currency pairs, presenting exciting trading opportunities.
Market Reaction
The dollar index (DXY) has fallen below the 107.09 level, signaling weakness for the USD. This shift has triggered strong bullish momentum in EUR/USD and GBP/USD. The EUR/USD pair has risen above the 1.04 handle, while GBP/USD has climbed 1% to exceed 1.256. Both movements break through key resistance levels, suggesting potential for further gains as bearish sentiment towards the dollar continues.
Technical Analysis
For EUR/USD, pushing above 1.04 indicates a breakout from its recent consolidation. Similarly, GBP/USD's rally past 1.256 means it’s close to its next resistance level. Momentum indicators like RSI and MACD may show bullish divergences across multiple timeframes, reinforcing the likelihood of continued upward movement.
Risk Considerations
Although the current outlook appears dollar-negative, watch for possible retaliatory measures from affected countries, which could increase volatility. Prepare for swift price movements by using wider stop-losses.
Fundamental Factors
Monitor how major economies, particularly the EU and UK, will respond to Trump's tactics. Upcoming economic data, especially inflation figures and central bank announcements, will provide essential insights into market direction.
Strategies for Traders
Consider a tiered entry strategy for long positions in EUR/USD and GBP/USD, allowing for averaging in at different levels. Set targets at major resistance levels while being ready to trail stops higher. Additionally, keep an eye on currency pairs involving the Japanese yen. The recent 1.1% drop in USDJPY to 152.78 could create more downside opportunities if market sentiment turns risk-off.
Conclusion
While possibilities abound in EUR/USD and GBP/USD, it's crucial to remain alert. The situation is fluid, and be prepared to adjust strategies quickly in response to new developments. Uphold strict risk management and anticipate wider spreads in this volatile environment.
