“What doesn’t kill us makes us stronger.” This principle perfectly describes the current reaction of the US economy to the oil shock. The rise in energy prices, which traditionally alarms politicians and threatens Republicans with losing electoral support in midterm elections, has actually become a powerful catalyst for growth in the United States. The reason lies in a fundamental shift: the country has transformed into a net exporter of energy resources, drastically improving its terms of trade. This serves as another compelling argument for “American exceptionalism,” relentlessly driving EURUSD quotes downward.
Research from leading academic institutions, including Harvard, shows that prior to 2010, oil shocks inevitably led to rising unemployment and sluggish business activity in the States. However, the shale revolution flipped this paradigm on its head. By transforming from a massive net importer (12 million barrels per day) into a net exporter (3 million barrels), the US gained a sort of immunity to high energy prices. Today, the oil rally coincides with falling unemployment and rising Purchasing Managers’ Index (PMI) readings.
Economists emphasize that the main driver of this growth is not the physical volume of supply, but higher export prices—in other words, an improvement in the terms of trade. Since August, we have observed a clear divergence between US and Eurozone macroeconomic indicators. This gap in GDP growth rates creates a solid foundation for the bearish trend in the euro. Striking confirmation of this is the Atlanta Fed’s GDPNow leading indicator, which forecasts an acceleration of the US economy to 3.7% in the third quarter, compared to 2.2% in the second.
The American economy demonstrates an enviable ability to absorb high interest rates. Moreover, the stock market (with the S&P 500 hitting all-time highs) is comfortably adapting to Treasury yields at levels unseen since 2002. It is precisely this resilience that allows the dollar to shrug off even sharp shifts in market expectations: in just a few days, futures slashed the probability of an October Fed rate hike from 73% to 19%, yet this failed to halt the greenback’s rally.
The primary casualty of the dollar’s strength is the euro. The French political drama is far from over. Marine Le Pen’s proposals to resolve budgetary woes by cutting EU transfers and immigration spending, coupled with her calls for the ECB to lower rates to ease sovereign debt servicing, are viewed by the market with deep skepticism. Investors, oscillating between bewilderment and disbelief, continue to massively dump French government bonds.
French debt yields are spiking faster than their US counterparts, but the core problem is that the European economy lacks the financial buffer to withstand this pressure. A vicious cycle takes hold: the deeper EURUSD falls, the more FX losses foreign holders of European assets incur. This, in turn, only accelerates their capital flight from the region.
In the current macroeconomic landscape, the trading strategy remains clear-cut. Any corrective bounces in EURUSD that get rejected at resistance levels of 1.129, 1.134, and 1.138, as well as a decisive break below the 1.1195 support level, should be utilized as excellent entry points for adding to short positions.
