What are the macroeconomic factors bringing me to this conclusion?
Let’s look at the macroeconomic data.
EUIR – 2.3%. (Target 2%)
EUINTR – 3.15%.
EU02Y – 2.15%.
ECB will likely pause rate hikes in the short term, to ensure inflation continues trending towards 2%. German Prelim CPI m/m which indicates change in the price of goods and services purchased by consumers is expected to decrease 0.2% in 6th of January report release.
Rate cut by ECB may be considered depending on clear signs of economic weakness and further easing of inflation pressures. EU economy is currently facing challenges that may lead to a period of economic weakness indeed. Below are the points that contributing to this downturn:
1. High energy costs: Increases production costs for businesses and reduces disposable income for consumers, dampening economic activity.
2. Geopolitical tensions: Disrupted trade routes in Ukraine and Middle east impacting investment and economic stability.
3. Political instability: Delayed policy responses in France and Germany. Such as protests and unrests in France over pension reforms and labour policies delays structural reforms in areas like taxation and workforce modernization. In Germany coalition government faces internal political challenges that leads to delays on issues like energy policy, climate targets and fiscal strategies. Political infighting has already shown its negative impact on Germany’s car industry, such as car giant as Volkswagen is planning to close at least three factories in Germany. The company is also considering reducing capacity at its remaining manufacturing sites
4. Trade uncertainties: The potential for global trade war under President Trump poses significant risks to EU’s export driven sectors.
Quote from ECB president Lagarde: Europe is falling behind in innovation and productivity compared to the U.S. and China. EU specializes in outdated technologies; only 4 of the world’s top 50 tech firms are European. Lack of unified digital market and venture capital investment hinders technological progress.19 Nov 2024
Additionally Goldman Sachs has revised its growth forecast for Europe downward, citing concerns over potential US tariffs and geopolitical uncertainties.
Considering the points mentioned which are based on the current information available of the ongoing political and economic situations I expect the EURUSD to fall and reach the rate of 0.9600 in the first place. Depending on the development of the current macroeconomic situation a new image will emerge in 2025 that will allow us to reanalyse the market conditions and identify potential trades.
I will share trade opportunities as they emerge.
