Forex analytics. The euro has been stabbed in the back – ForexNews.PRO
Everyone has a plan until they get hit in the head. The EURUSD was steadily heading towards 1.17, but the split in the ranks of the Christian Democratic Union came as an unpleasant surprise to the euro. If Friedrich Merz cannot run his own party, is he capable of running the country? The Social Democrats hinted at the collapse of the coalition in the event of the failure of the pension bill in the Bundestag. This is fraught with early elections and the victory of the Alternative for Germany, which is at the peak of its popularity.
Politics often clips the wings of the euro, and geopolitics does not allow them to spread at all. Despite the fact that Russia and Ukraine could not reach a consensus, the EURUSD bulls believe that this will happen by Christmas. Coupled with the Santa Claus rally in the US stock market, repatriation of profits by European investors and hedging, this inspires hopes for the growth of the regional currency in a seasonally strong December.
However, man presupposes, and God disposes. The drop in applications for unemployment benefits to the lowest levels in three years brings to mind the “hawks” of the FOMC. The committee is divided, Jerome Powell is seeking a compromise. And if we are going to cut the federal funds rate in December, we should throw a bone to those who are against such a move by the Fed. Such a bone is likely to be hints of a pause in the cycle of monetary expansion. Unsurprisingly, the futures market offers only a 25% chance of cutting the cost of borrowing from 3.75% to 3.5% at the first meeting of the central bank in 2026.
As a result, the story of the two previous meetings risks repeating itself, when the US dollar strengthened in response to the federal funds rate cuts in September and October. Investors bought EURUSD on rumors and sold it on facts. Another thing is that this time, a seasonally strong December is playing on the side of the euro.
What’s next? Much will depend on the shadow chairman of the Federal Reserve and the state of the US economy. The topic of the recession is forgotten-forgotten. Perhaps in vain. The ratio of the LEI leading indicator index and the matching CEI economic index clearly hints at a recession.
Kevin Hassett, the main contender for the post of Fed chairman, said that the central bank should cut rates in December. In his opinion, they will fall significantly lower, but everything will depend on inflation and employment. In the meantime, if you have 25 bp, you need to take them. The shadow chairman has started his work. So much the worse for the US dollar.
