Reason: I am recommending a short EUR/USD trade based on our outlook for a weaker euro against the US dollar as we approach early 2025. My view aligns with the broader market expectations that Donald Trump, upon assuming office, will likely impose higher tariffs on imports from the EU. This move would deliver a significant negative growth shock to the eurozone, which has only recently started recovering from the energy price crisis triggered by the Ukraine conflict.

The European Central Bank (ECB) is expected to respond to slowing growth by continuing its rate-cutting cycle, as inflation gradually falls back toward its target. However, the combination of a weaker EUR and potential retaliatory tariffs could heighten inflation risks over the longer term.

In contrast, I anticipate the US rate market will remain cautious, as uncertainty around inflation stemming from Trump’s policies could prompt the Federal Reserve to slow the pace of its rate cuts next year. This divergence in monetary policy outlooks strengthens the case for further EUR/USD downside.

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Risk Management: I only risk up to 1% of my total balance on each trade. This strategy minimizes losses and keeps my portfolio stable, even when market conditions change.

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Short EURUSD

Nov 19 2024