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15.01.2025 12:55 AM
The Euro Sees Light at the End of the Tunnel

The dollar is often viewed as the currency of pessimists, gaining strength during uncertain times for the global economy. Recent tariff threats from Donald Trump have contributed to a bleak outlook for global GDP. While many may consider retaliatory measures, a large-scale trade war would likely be detrimental to riskier assets. However, as rumors of a phased implementation of tariffs began to circulate in the Forex market, investors transitioned from a stance of pessimism to one of moderate optimism.

According to Donald Trump's team, headed by Scott Bessent, tariffs ranging from 2% to 5% are not expected to significantly accelerate inflation or impede the growth of foreign economies. Other countries may hesitate to retaliate, particularly since the U.S. could choose to increase tariffs further. This phased approach suggests that the gap in GDP growth between the U.S. and the Eurozone may not be as large as initially thought. This factor could, at the very least, slow down the EUR/USD bears.

Dynamics and Forecasts for the U.S., UK, and Eurozone Economies

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The issue at hand is the unpredictability of Donald Trump's actions. Will he deny Bloomberg's insider report, as he did with The Washington Post's article based on informed sources a week prior? The Republican president is known for making last-minute reversals and often chooses to disregard advice rather than follow it, leading to uncertainty about the details of the initial tariff package. Consequently, market sentiment could quickly shift from moderate optimism to pessimism, which would bolster the U.S. dollar.

Additionally, EUR/USD bears are supported not only by the divergence in economic growth between the U.S. and the Eurozone but also by the differences in their monetary policy trajectories. U.S. inflation is rising, even in the absence of tariffs and fiscal stimulus from Donald Trump, as indicated by Bloomberg's December Consumer Price Index (CPI) forecasts and increasing inflation expectations. The futures market suggests that the Federal Reserve is unlikely to cut the federal funds rate until October.

U.S. Inflation Expectations Dynamics

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European Central Bank Chief Economist Philip Lane is expressing significant concern about the potential return of deflation in the Eurozone. He stresses the importance of continuing the monetary expansion cycle as quickly as possible. Meanwhile, other ECB officials anticipate that borrowing costs will reach a neutral level of 2%—a rate that neither stimulates nor constrains the economy—by May.

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By summer, the interest rate differential between the Fed and the ECB could widen from the current 150 basis points to 250 basis points. This shift may drive the EUR/USD exchange rate below parity.

From a technical perspective on the EUR/USD daily chart, the appearance of a pin bar with a long lower shadow suggests a potential bullish counterattack. However, for this to materialize, bulls need to maintain control over the lower boundary of the fair value range, which is between 1.025 and 1.044. If they succeed, it may justify short-term buying. If not, selling the euro remains the more prudent strategy.

Marek Petkovich,
Especialista em análise na InstaForex
© 2007-2025
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