empty
21.11.2024 12:50 AM
The Euro Shoots Without Thinking

Markets often "shoot first and ask questions later." Investors started buying the euro against the US dollar following the escalation of armed conflict in Eastern Europe. However, the consequences of this development are more detrimental to the Eurozone economy than to its American counterpart. The European Central Bank's biennial review highlights a slowdown in European GDP in the face of heightened geopolitical risks. And that's not even the most striking insight in the report.

This summer, the Federal Reserve shifted from high inflation to supporting the labor market and ensuring a "soft landing" for the US economy. This change in priorities from Jerome Powell and his colleagues weakened the US dollar. Now, as autumn wanes, the ECB appears to be following suit. It has been noted that the risks of an economic slowdown in the eurozone currently outweigh the risks of accelerating inflation.

Trade wars and geopolitical tensions could further stifle Eurozone GDP. The currency bloc exports more goods to the US than it imports, making it vulnerable to tariffs on imports imposed by Donald Trump. Moreover, Europe's reliance on exports means that disruptions to international trade and a slowing global economy would be a severe blow. Unsurprisingly, the euro was declining sharply before the Eastern European conflict escalated.

Eurozone Trade Balance Dynamics with the US

This image is no longer relevant

Geopolitical risks tend to have short-term effects, as evidenced by the oil market. Thus, the drop in US Treasury yields and the accompanying EUR/USD rally could be temporary. Buying in such a market is extremely risky.

Fundamentally, the case for selling the euro against the US dollar remains strong. Bank of Italy President Fabio Panetta states that demand in the Eurozone is stagnating, and inflation has reached its target. Keeping interest rates high in this scenario makes little sense. They should be moved to a neutral—or perhaps even accommodative—zone as soon as possible. If European business activity data shows further slowdown, the odds of a 50 basis point ECB deposit rate cut in December will rise, putting additional pressure on the euro.

This image is no longer relevant

Meanwhile, the market doubts that the Fed will ease monetary policy at the end of the year. The federal funds rate has been above 5% for most of the past two years. However, the US economy is strong, with unemployment at 4.1%—still modest by historical standards—and third-quarter GDP expanding by 2.8%. Inflation could resurface. Why take risks?

The battle for the key level of 1.0545 continues on the daily chart. The most the bulls managed was to push the pair toward 1.0600, where sellers took over. A drop in the euro below 1.0525 would heighten the risks of resuming the downward trend, providing a basis for adding to medium-term shorts with a target of 1.0350.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

EUR/USD. Analysis and Forecast

Today, the EUR/USD pair is showing signs of recovery but continues to face challenges as the U.S. dollar strengthens amid progress in trade negotiations between the United States and China

Irina Yanina 11:08 2025-05-13 UTC+2

USA and China: A 90-Day Truce. U.S. Inflation Report in Focus (High probability of a decline in EUR/USD and GBP/USD)

On Monday, the markets breathed a sigh of relief following the announcement of a trade agreement between the United States and China. The deal involves mutual tariff reductions, but only

Pati Gani 10:07 2025-05-13 UTC+2

The Market Hits the Jackpot!

Bingo! No one could have dreamed of such an outcome from the U.S.-China meeting—not even in their most optimistic fantasies. The reduction of U.S. import tariffs from 145% to 30%

Marek Petkovich 09:20 2025-05-13 UTC+2

GBP/USD Overview – May 13: The British Pound Takes a Low Blow

The GBP/USD currency pair plummeted rapidly on Monday. The U.S., represented by Treasury Secretary Scott Bessent, announced the first signs of progress in trade negotiations with China. Following a bilateral

Paolo Greco 07:30 2025-05-13 UTC+2

EUR/USD Overview – May 13: The U.S. And China Unexpectedly Reached an Agreement

On Monday, the EUR/USD currency pair dropped sharply, like a rock falling. Can you guess who deserves the credit for that? It's none other than Donald Trump. Though this time

Paolo Greco 07:30 2025-05-13 UTC+2

What to Pay Attention to on May 13? A Breakdown of Fundamental Events for Beginners

Quite a few macroeconomic events are scheduled for Tuesday, but most are expected to have only a minor impact on the movement of both currency pairs. As a reminder

Paolo Greco 05:59 2025-05-13 UTC+2

EUR/USD. The Dollar Is Back in the Saddle. But for How Long?

The greenback is back on top: the U.S. Dollar Index hit a four-week high on Monday, responding to the announcement of a three-month truce in the trade war between

Irina Manzenko 01:01 2025-05-13 UTC+2

China Helped the Dollar Halt Its Decline

The CFTC report released on Friday showed minimal changes in overall currency positioning, with the net USD position against major currencies decreasing by a symbolic $0.1 billion to—$17.2 billion

Kuvat Raharjo 00:24 2025-05-13 UTC+2

The Dollar Takes Time to Saddle Up but Rides Fast

Investors have shifted from the "Sell America" strategy that emerged after the White House imposed tariffs to "Buy America" amid positive developments in U.S.-China trade relations. While the S&P

Marek Petkovich 00:23 2025-05-13 UTC+2

Bitcoin Has Completed Its Minimum Task

Bitcoin has broken above the 100,000 mark, entered a consolidation phase, and confirmed the familiar pattern. Previously, after breaking through psychologically significant levels, the cryptocurrency experiences a period of stagnation

Marek Petkovich 00:23 2025-05-13 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.