Will EURUSD Continue to Move Higher?

Will EURUSD Continue to Move Higher?   While I use charts for my trading, I also treat it like a puzzle. When all the pieces...

Will EURUSD Continue to Move Higher?

While I use charts for my trading, I also treat it like a puzzle. When all the pieces fit together the orie action makes sense to me and makes it easier to trade with confidence. When a poiee is missing I go on a search to try and find it.

This was the situation following Trump Liberation Day tariff announcement. The initial reaction following it waslogical with the dollar firming oin safe haven demand. However, when I woke up the next day, the reverse had happened with the dollar selling off. Led by the JPY and EUR.

It took me awhile to get my bearings until a light bulb went off in my head flashing two words, carry trades.

While the were other reasons to explain a weaker dollar, for me unwinding of carry trades was a missing piece.

Will EURUSD Continue to Move Higher?

What is a carry trade?

A carry trade is where investors borrow in a low yielding currency (e.g. EUR, JPY, CHF) to invest in higher yielding and/or other assets.

While I am not privy to way hedge funds and other institutional investors trade, it appears likely that some (or many) use carry trades as part of their investment strategies,

I did some research on the topic and found that  in 2024 Goldman Sachs identified the EUR as a favored funding currency, especially when compared when compared to the ore volatile CHF and JPY. I assume that with the ECB seen cutting interest rates in 2025, EUR should have remained one of the preferred funding currencies.

While I have no idea whether a carry trade strategy involving the EUR continued into 2025, the price action over the past few days suggests this has been the case

The missing piece of the puzzle

EURUSD 4 HOUR CHART  – Unwinding carry trades)

XAUUSD 4 HOUR CHART (Unwinding carry trades) 

It finally became clear to me why the EURUSD was bid on Thursday, days after Trump announced the tariffs. As stocks meted down, GOLD took a dive, and the EURUSD firmed, I called it a liquidating market.

Will EURUSD Continue to Move Higher?

Further evidence of unwinding:

Will EURUSD continue to move higher?

Assuming a chunk of the EUR funded carry trades have been unwound, it would take fresh buying and/or another wave of liquidations to extend the move higher.

In this regard, how EURUSD trades vs. 1.10 will dictate whether a move that started with carry trade unwinding exhausted itsael with a spike to 1.1147. or whether it can build momentum on its own without a fresh round of liquidations.. In this regard, EURUSD has so far been unabke to establish a footing above  1.10 despite scveral attempst above this pivotal level.

Will EURUSD Continue to Move Higher?