Trade Deal Between the USA and the EU – Fiction?

[Ben Graham]

In the summer, Brussels and Washington concluded a trade agreement that ended the trade war. I remind you that under the terms of this agreement, the European Union is obliged to purchase energy resources from the US for a certain amount of money (measured in hundreds of billions of dollars) and invest in the American economy a certain sum of money (also measured in hundreds of billions of dollars). In exchange, Donald Trump removed a significant portion of trade barriers (tariffs) on European goods. However, some were still kept.

The European Union began to conscientiously fulfill the terms of the agreement and to increase oil and gas imports from the US. However, there was a problem – in recent months, the prices of oil and gas have decreased on average by 7%, so in monetary terms, the EU started spending less on the purchase of energy resources than before the agreement was concluded. This raises the question: what should be done about it?

If the agreement between the EU and the US clearly outlines obligations for purchasing energy resources at a certain annual amount, then Brussels will have to buy significantly more oil and gas than it needs. But what to do with all the excess gas or oil? While gas storage facilities exist and can theoretically be filled to 100%, oil storage facilities are usually absent or do not allow for the storage of large amounts of oil.

Economists explain this situation by stating that the deal is, in fact, of an oral nature, and the agreement does not specify clear purchase volumes, as well as scenarios for force majeure situations, particularly in cases where prices fall sharply. Economists believe that raw material purchases have always been made on the basis of needs and costs, not on political promises. The European Union simply cannot purchase more oil and gas than it can consume. Therefore, the trade agreement with Trump appears to be a fiction or requires revision. Alternatively, it might contain provisions that explain what to do in such situations, but these are not available to the general public.

At present, the European Union has purchased energy resources from the USA for a total of $74 billion, which is about a third less than the obligations. If we speak only about gas, even if the EU replaced all Russian gas with American gas, it would amount to $29 billion per year. This is approximately a quarter of the necessary amount that Brussels "should" spend under the trade deal.

Wave Picture of EUR/USD:

Based on the analysis of EUR/USD, I conclude that the instrument continues to build a bullish trend. The policies of Donald Trump and the Federal Reserve's monetary policy remain significant factors in the long-term decline of the American currency. The targets of the current section of the trend may extend to the 25th figure. The current ascending wave pattern is beginning to develop, and I would like to think that we are now observing the construction of an impulse wave set, which is part of the global wave 5. In this case, one should expect growth with targets around 1.1825 and 1.1926, corresponding to 200.0% and 261.8% by Fibonacci.

Wave Picture of GBP/USD:

The wave picture of the GBP/USD instrument has changed. The descending corrective structure a-b-c-d-e in C in 4 is complete, as is the entire wave 4. If this is indeed the case, I expect the main trend to resume construction, with initial targets around 38 and 40.

In the short term, I expected wave 3 or c to form, with targets around 1.3280 and 1.3360, corresponding to 76.4% and 61.8% of Fibonacci. These targets have been reached. Wave 3 or c is still underway, and at this time, there is a fourth attempt to break the 1.3450 level, which corresponds to the 61.8% Fibonacci. The target levels for the movement are 1.3550 and 1.3720.

Fundamental Principles of My Analysis:

1. Wave structures should be simple and straightforward. Complex structures are difficult to trade, as they often bring changes.
2. If there is no confidence in what is happening in the market, it is better not to enter it.
3. There can never be 100% confidence in the direction of movement. Don't forget about protective Stop Loss orders.
4. Wave analysis can be combined with other types of analysis and trading strategies.

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