Europe has reduced its carbon emissions by 30% compared to 2005 levels. However, the rapid transition has driven up electricity prices and slowed GDP growth and AI investment. Let's discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The US economy has a safety net.
- High energy prices are slowing the EU economy.
- Monetary policy divergence is supporting the euro.
- Long positions on the EUR/USD pair can be considered above 1.162.
Weekly Euro Fundamental Forecast
The ninth consecutive decline in US manufacturing business activity resulted from higher costs for companies due to import tariffs. The scenario continues to unfold in which the US administration's protectionism is slowing down the US economy and boosting the EUR/USD rally. The major currency pair has reached a two-week high but has failed to settle above it.
Tariffs dragged the USD index down by 10% in the first half of the year, but then the greenback began to recover. The reason lies in the smaller than previously expected impact of import duties on the US economy and global GDP. First, the frontloading of US imports, and then AI solutions, helped them. In January–July, AI investments accounted for up to half of the growth in the United States' gross domestic product. By the way, the US economy accounts for a quarter of the global economy.
Energy Prices in Europe and US
Source: Wall Street Journal.
Europe can hardly boast about this, given the excessively high electricity prices. The EU has been too eager to switch to green energy. It has slashed carbon emissions by 30% compared to 2005. For the US, this figure is 17%. However, the cure has proven to be worse than the disease: the energy crisis was not caused solely by Russia's military operation in Ukraine. Excessively high energy prices are destroying industry and stifling investment in AI.
As a result, there are serious doubts that the divergence in economic growth between the US and the eurozone will narrow. Meanwhile, Germany's fiscal stimulus and increased EU defense spending support the currency bloc's economy. However, it is precisely the narrowing gap in GDP growth, coupled with the divergence in monetary policy between the Fed and the ECB, that underlies the upward trend in the EUR/USD pair.
Chances of Candidates for Fed Chair
Source: Wall Street Journal.
While the ECB is boasting about its triumph over inflation, the Fed aims to lower interest rates. The chances of Kevin Hassett, director of the National Economic Council, becoming Fed chair are growing rapidly. Along with them, the scale of the anticipated monetary expansion is also increasing.
Thus, the EUR/USD's path to the upside will be thorny. The euro has a wild card in the form of the end of the armed conflict in Ukraine, which will allow it to lower electricity prices and increase investment in artificial intelligence. However, this is yet to be played.
Weekly EURUSD Trading Plan
With EUR/USD quotes remaining below 1.162, a sharp upward movement can be ruled out. The risks of consolidation are growing, so the euro can be purchased on pullbacks.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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