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✅ Rationale for EUR Buy & Oil Sell

✅ Rationale for EUR Buy & Oil Sell

🔵 1. Progress in Ukraine Peace Talks → Lower European Risk → EUR Buying

Ukraine has agreed to the U.S.-proposed 19-point peace framework.

U.S. and Russian officials reportedly held secret talks in Abu Dhabi,
and U.S. officials are “optimistic” about a deal.

As geopolitical risks in Europe decline
— energy supply fears, military risk, and market uncertainty —
European bond yields stabilize.

➡ Creates an environment supportive of EUR strength.

The euro is the currency most sensitive to “risk premium compression,”
making peace expectations a direct tailwind that removes downward pressure on EUR/USD.

🔵 2. U.S.–China Relations in a “Good Place” → Risk-On Mood → Supports EUR

U.S. Treasury Secretary Bessent stated:

  • “Relations with China are in a good place.”

  • “U.S. policy on Taiwan remains unchanged.”

  • Trump could attend the 2026 Shenzhen APEC summit.

These point to a decline in U.S.–China confrontation risks,
enhancing global risk sentiment → weakening the strong-dollar trend → bullish EUR/USD.

In addition:

  • China’s planned soybean purchases are proceeding smoothly → sign of continued U.S.–China economic cooperation.

This further reduces geopolitical confrontation risk.

🔵 3. Fed Officials Turning Dovish → Dollar Weakness → EUR Support

U.S. Treasury officials noted that Fed policymakers are leaning toward rate cuts.

Expectations that a new Fed Chair may be announced before Christmas
also fuel speculation of a policy shift.

Additionally:

  • U.S. government shutdown impact: GDP –1.5% (≈$11B loss)

  • Weak economic data strengthens the case for rate cuts

➡ Macro environment turning dollar-negative, supporting EUR/USD upside.

🔴 4. Rationale for Oil Selling (WTI/Brent)

① Peace Progress in Ukraine → Sharp Decline in Supply Risk

Developments on the peace front are clearly bearish for the energy market:

  • Reduced risk to Russian oil & gas supply

  • Improved European inventory and supply chain outlook

➡ Removal of geopolitical premium → downward pressure on crude prices.

② Better U.S.–China Relations: Normally Bullish, but This Time Bearish for Oil

While risk-on typically supports crude, the current context is different:

  • Peace progress → removal of “war premium”

  • Reduced geopolitical tension around China → unwind of speculative long positions

  • Weak U.S. GDP → softer real demand

➡ Net effect: WTI/Brent face more downside from fading supply risk than upside from risk-on.

③ Weak U.S. Economic Data → Lower Demand Outlook → Oil Down

  • Government shutdown impact: GDP –1.5%

  • ~$11B economic loss

  • Slower U.S. demand — critical as the world’s largest oil consumer

➡ Demand-side cooling → heavier crude price action.

📌 Summary: Market Impact

✅ EUR Bullish Factors

  • Ukraine peace progress → reduced European geopolitical risk

  • Stabilized U.S.–China relations → unwind of USD overstrength

  • Rising expectations of Fed rate cuts → weaker dollar → EUR/USD upward bias

❌ Bearish Factors for Oil

  • Peace progress → geopolitical premium evaporates

  • Weak U.S. GDP → demand concerns

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