After a recent surge in the euro, pound, and several other risk assets, the U.S. dollar has recovered some of its losses. The likelihood of further strengthening of the dollar has increased significantly after President Donald Trump downplayed the recent sharp decline in the U.S. stock market. This market turmoil was caused by concerns that his tariff policy might push the world's largest economy into a recession. However, Trump stated that he does not anticipate a recession in the U.S. Additionally, today's U.S. inflation data could influence the Federal Reserve's position on potential interest rate cuts.
Yesterday, during a meeting with representatives from several major American companies, Trump expressed his commitment to reviving the U.S. economy. "I see no issues with the economy. I believe this country will thrive," he stated on Tuesday at the White House. He acknowledged that markets experience fluctuations but emphasized that the key focus should be on guiding the country onto a new path.
Trump's comments came amid three weeks of volatility in the U.S. stock market and the dollar's weakness against several risk-sensitive currencies.
On Tuesday, stocks fell due to new tariff threats against Canada, the U.S.'s largest trading partner. This action led to a 10% decline in the S&P 500 index from its February high before buyers stopped the drop. Later, Trump signaled that he would ease the previously announced 50% tariffs on steel and aluminum for Canada, which helped further limit losses.
The sharp declines in recent weeks followed the president's and administration officials' warnings that the U.S. economy could face difficulties as they use tariffs to rebalance trade flows while implementing deep spending cuts and federal workforce reductions. In a recent interview with Fox News, Trump even refused to rule out the possibility of a recession.
It is worth noting that Trump previously viewed the stock market as validation of his economic policies, but in recent weeks, he has significantly downplayed its importance. He reiterated this stance in yesterday's speech. "No, it doesn't concern me," Trump said when asked about market volatility. "I think some people will make great deals by buying stocks and bonds. I think we are going to have an economy that is a real economy, not a fake one."
Trump's words appear to have positively impacted both the stock market and the U.S. dollar. Notably, today's U.S. inflation data will be released. If another wave of price pressure emerges, the Fed will likely abandon its near-term plans to cut interest rates, which would support the dollar against several risk-sensitive assets.
However, markets are pricing in different scenarios. If inflation exceeds expectations, we will likely see dollar strength and a decline in stock indices, as investors will reassess monetary policy expectations and anticipate more aggressive action from the Fed. On the other hand, moderate inflation data could trigger a rally in equities, as market participants would see it as a signal for the Fed to ease policy soon. However, excessively weak figures could raise concerns about slowing economic growth.
In any case, today's data will be crucial in shaping market trends in the coming weeks. Traders should follow the news closely and be prepared for volatility.
In the current technical outlook for EUR/USD, it is essential for buyers to reclaim the 1.0950 level. Only after achieving this can they aim for a test of 1.0980. If successful, a further push toward 1.1010 is possible; however, this may be challenging without strong support from major market players. The ultimate target remains the 1.1050 high. If the pair declines, I anticipate significant buying interest around the 1.0890 level. Should there be insufficient support at that point, it would be prudent to wait for a test of the 1.0840 low or to consider opening long positions near 1.0800.
As for the current technical outlook of GBP/USD, buyers need to break through the nearest resistance at 1.2960. Only after surpassing this level can they target 1.3010, but moving beyond this point will become increasingly difficult. The ultimate aim is the 1.3040 area. On the other hand, if the pair declines, sellers will try to take control at 1.2915. A successful drop below this level would significantly undermine bullish positions and could push GBP/USD down to 1.2875, with the potential to reach as low as 1.2840.
