American dragon shows its teeth

EUR/USD

Key zone: 1.1650 - 1.1750

Buy: 1.1750 (on strong positive fundamentals) ; target 1.1900; StopLoss 1.1680

Sell: 1.1620 (on a pullback after retesting the 1.1700 level) ; target 1.1500; StopLoss 1.1680

Few doubted that the Trump era would be accompanied by strong shocks to global politics, so unconventional market volatility comes as no surprise. However, traditional methods of countering such aggression have proven ineffective.

Let us recall:

From the announced financial objectives, Trump has so far achieved:

• a weak dollar, a rising equity market, and low oil prices;
• the process of forming new trade relations has intensified, but problems remain, particularly with China;
• the idea of a digital dollar has been buried: the Federal Reserve is legally prohibited from issuing CBDCs, cooperation with the BIS has been terminated;
• tax reform — or rather, the extension of first-term tax cuts — has been approved by Congress;
• private stablecoins backed by U.S. Treasuries have been authorized.

Among the goals not yet achieved, Donnie wanted low Fed rates, 10-year Treasury yields at 1%, and lower mortgage rates. In addition, Trump stated his desire to acquire Greenland, make Canada the 51st state, and gain full control over the Mexican (now American) Gulf. However, last week’s events showed that U.S. ambitions are far more extensive.

The justification of the military operation in Venezuela demonstrated how Trump intends to continue executing his team’s plans — and markets will be forced to defend themselves.

Trump confirmed the return of the U.S. to the Monroe Doctrine, meaning the restoration of American dominance in the Western Hemisphere. Such a policy implies agreements under which Europe loses U.S. political and military protection, while China (at the very least) regains Taiwan.

It remains unclear whether Trump’s attack on Venezuela was coordinated with China, or whether Taiwan’s takeover would be peaceful. If not, the U.S. equity market will collapse, as the United States is not yet capable of producing advanced AI chips domestically in the required volumes — America remains highly dependent on Taiwan’s TSMC facilities.

Assets in Europe and Taiwan, as well as shares of companies dependent on Taiwanese production, are currently market leaders. If Trump’s planned April visit to China is canceled, we should expect a geopolitical apocalypse.

Several additional points on the current situation:

• Loss of Fed independence remains one of the market’s fears. Nevertheless, rate cuts do not automatically lead to rising Treasury Bills; on the contrary, rate cuts amid rising inflation would trigger capital outflows from U.S. T-Bills.
• Tariff policy has lost its destabilizing impact on markets. A Supreme Court ruling on Trump’s tariffs may cause a short-term correction but will not change the broader picture. Even with an adverse verdict, Trump will replace one executive order with hundreds of new ones, and no one will refund tariffs to taxpayers.
• The risk of another U.S. government shutdown from February 1 remains if Trump fails to reach a compromise on healthcare acceptable to Democrats. Market reaction and consequences would mirror the autumn crisis.
• In the medium term, the yen deserves close attention: a mass exit from JPY carry trades would trigger a significant liquidity outflow, primarily from U.S. assets. Against the backdrop of expected Fed rate cuts and gradual BOJ rate hikes, the real yield spread between the U.S. and Japan is narrowing — a traditional driver of USD weakness against JPY.
• The ECB keeps rates stable with room for later adjustments, but its monetary policy remains less restrictive, supporting the euro. Divergence in monetary policy (Fed easing vs. ECB stability/possible tightening) creates a fundamental basis for EUR/USD appreciation.

Trump is intensifying economic and political escalation, the risk premium on the dollar is rising, reinforcing a bearish bias on USD against EUR, GBP, and AUD, especially during periods of conflict escalation. Thorough fundamental analysis must remain a mandatory element of any trading strategy.

So we act wisely and avoid unnecessary risks.

Profits to y’all!