The European Union Wants the World to Switch to Euro

[Ben Graham]

The European Union has long sought to have the euro replace the dollar in global settlements and reserves. Up to this point, the euro is still far from achieving that goal, as recent estimates show that 50-60% of the world's central bank reserves are in dollars. The euro's share is the second largest, but significantly lower than that of the dollar. However, for trust in the European currency to grow, the euro would need to appreciate. It is worth noting that over the past 20 years, the American currency has strengthened from 1.60 USD to 1.00 USD. Now, Donald Trump has begun actively changing this situation, but overall, the dollar remains much more expensive than it was 20 years ago.

As soon as the European currency climbed by 15%, panic ensued in Europe. The export-oriented EU economy has been much closer to stagnation than growth in recent years and decades. Growth rates are weak, and the German economy is no longer fulfilling its role as a locomotive, as its pace is even weaker. If the European currency increases in value, it means that export volumes are decreasing. In 2025, Donald Trump's tariffs also negatively affected European industry and exports, leaving the European economy in a difficult position.

The European Central Bank (ECB) is actively considering lowering interest rates, not to halt the decline in inflation, but to calm the rise in the euro. It should be emphasized that a loosening of monetary policy means that demand for European investments begins to decline, as they yield lower returns than those in other countries. As a result, demand for the currency, which is necessary for investments, is also falling.

Inflation could help the ECB in this situation. An inflation report for January will be released on Wednesday, and forecasts indicate a probable slowdown to 1.7% year-on-year. A 1.7% annual rate is not yet a critical point, but a steady presence below the 2% mark could prompt the ECB to return to easing policy. Will this stop the rise of the euro? In my opinion, no. Donald Trump also demands rate cuts from the Fed, and he is gaining increasing influence over the Fed each year. At the same time, his protectionist and authoritarian policies significantly reduce foreign investors' willingness to invest in the American economy. The currency confrontation will continue, but the favorite in this contest is the United States.

Wave picture for EUR/USD:

Based on the conducted analysis of EUR/USD, I conclude that the instrument continues to build an upward section of the trend. Donald Trump's policies and the Fed's monetary policy remain significant factors in the long-term decline of the American currency. The current trend targets may reach the 25 figure. At this moment, I believe that the global wave 4 has completed its formation, so I expect further price increases. However, I anticipate a downward wave in the near term, as the series of waves a-b-c-d-e also appears complete. In the near future, my readers can seek benchmarks for new purchases.

Wave picture for GBP/USD:

The wave picture of the GBP/USD instrument is quite clear. The five-wave upward structure has completed its formation, but the global wave 5 may take on a much more extended form. I believe that a corrective set of waves may be formed in the near future, after which the upward trend construction will resume. Consequently, in the coming weeks, I can recommend looking for opportunities for new purchases. In my opinion, under Donald Trump, the British pound has every chance to be valued at 1.45-1.50 USD. Trump himself welcomes the decline of the dollar. All his actions have a double positive effect: the decrease of the dollar and the resolution of internal, external, trade, and geopolitical issues.

Key Principles of My Analysis:

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

The material has been provided by InstaForex Company - www.instaforex.com