As a rule, thanks to divergence in monetary policy and a narrowing gap in economic growth between the US and the eurozone, the EUR/USD pair tends to eventually resume its upward trend. However, that’s not all the euro has to offer. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- Europe is ready to increase liquidity.
- Sweden can join the eurozone.
- The next ECB president may be a hawk.
- Short positions on the EUR/USD pair can be opened on a breakout of 1.1835.
Weekly Euro Fundamental Forecast
A rolling stone gathers no moss. One could argue at length that the US dollar’s position in the international economic system is unwavering. Its share in settlements, gold and foreign exchange reserves, and conversion operations is so significant that it is impossible to dethrone the king. However, nothing will change until you start doing something. Europe’s first steps to enhance the role of the euro could boost the EUR/USD pair.
The ECB is ready to provide euro liquidity to any central bank in the world that has not tarnished its reputation with money laundering or other illegal activities. The Bundesbank speaks highly of stablecoins pegged to regional currencies, and Sweden’s willingness to join the eurozone adds to the optimism of EUR/USD bulls. A weak currency is rare for a strong economy, and Sweden is standing firmly on its feet. The strengthening of the krona is proof of this.
Euro and Dollar Performance Against Swedish Krona
Source: Bloomberg.
If the ECB provides free liquidity, it could boost demand for the euro and strengthen it. Not only ING but also the Bank of France agrees with this. The bank is worried about this, saying that revaluation would hurt European exports. In fact, this process could drive up EUR/USD quotes due to capital rotation in global financial markets. Investors are withdrawing funds from the US and moving them to Europe and other regions because they are worried about the US administration’s policies. Expanding access to euro liquidity would definitely give them some breathing room.
Another factor supporting the EUR/USD could be the change in ECB leadership. Christine Lagarde is stepping down in 2027, and according to Bloomberg experts, the most likely candidate to replace her is Klaas Knot. He is one of the toughest hawks on the Governing Council.
Odds and Qualifications of Candidates for the EBC Presidency
Source: Bloomberg.
Suffice it to recall how the US dollar strengthened in response to Donald Trump’s selection of Kevin Warsh as Fed chair. The markets got the least dovish candidate of all possible options. The same could happen in Europe. Expectations of hawkish dominance in the ECB are likely to strengthen the euro. In this case, the chances of a deposit rate hike by the end of the year will increase.
Thus, along with divergence in monetary policy and a narrowing gap in economic growth between the US and the eurozone, EUR/USD bulls have more grounds to expect that the upward trend will be restored. The dollar may still fight back in the near term thanks to the Fed’s prolonged pause. However, you cannot escape your fate. The future looks brighter for the euro.
Weekly EURUSD Trading Plan
A breakout of 1.1835 will allow traders to increase short positions formed at 1.185 and 1.1845 on the EUR/USD pair. At the same time, one should start looking for support levels from which the pair may rebound.
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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