Fears surrounding AI have intensified ahead of the US midterm elections. Prediction markets currently put the odds of a Democratic victory at 70%, a result that could potentially slow the adoption of emerging technologies. Let’s examine the potential political and economic implications and develop a trading strategy for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The US economy is outpacing the European economy.
- The ECB’s caution regarding inflation is weighing on the euro.
- The dollar is falling along with stock indices.
- Short trades can be considered on rebounds from 1.1195, 1.1240, and 1.1300.
Weekly Fundamental Forecast for Dollar
Artificial intelligence has become so influential that it is reshaping both macroeconomic and monetary policy landscapes. Despite diverging growth trajectories and the Fed’s faster pace of monetary tightening than the ECB—factors that should have dragged EUR/USD lower—AI-related fears have reversed bears’ gains. The Nasdaq 100 recorded its worst monthly performance since April 2025, and the US dollar declined alongside it.
Meanwhile, the eurozone economy expanded by 0.4% in the third quarter, twice the market consensus. At first glance, this appears positive for the EUR/USD. However, context always matters. On an annualized basis, GDP growth in the currency bloc slowed from 2.6% to 1.7%, roughly half the pace recorded by the US economy. The US continues to outperform, largely driven by AI-related investment and productivity gains. Against this backdrop, concerns about a potential correction in AI-linked equities are putting pressure on the dollar.
Likelihood of Democratic Victory in US Midterms
Source: Bloomberg.
Investor sentiment is already fragile following disappointing earnings reports from several major technology companies. The upcoming US midterm elections add another layer of uncertainty. According to Polymarket and Kalshi, the odds of Democrats winning both the House and Senate stand at around 70%. ING expects such an outcome to weigh on the greenback. Political gridlock could increase the risk of a debt-ceiling standoff and another government shutdown. Meanwhile, lawmakers may push for tighter regulation of the AI sector and introduce measures that could complicate the operating environment for the crypto industry. These developments could undermine global risk appetite and accelerate the sell-off in the Nasdaq 100.
Under normal circumstances, this should benefit the US dollar as a safe-haven asset. However, Deutsche Bank argues that the traditional relationship is not holding under current market conditions. Around 90% of foreign investors’ returns on US equities have come from capital appreciation. A sustained decline in stock prices could therefore prompt international investors to unwind their long positions, selling both US equities and the dollar.
Inflation in EU Countries
Source: Bloomberg.
Meanwhile, easing inflation in Germany in October and Fitch’s downgrade of France’s credit rating outlook should make the ECB more cautious about further monetary tightening. By contrast, FOMC officials are signaling a more hawkish stance, with Dallas Fed President Lorie Logan even advocating two rate hikes.
Thus, when it comes to economic growth and the pace of monetary tightening, the US dollar appears to have the upper hand over the euro. However, AI-related fears are disrupting this otherwise straightforward narrative, adding volatility and undermining the dollar’s traditional advantages.
Weekly Trading Plan for EUR/USD
The EUR/USD pair may gain ground ahead of the midterm elections as markets price in expectations of the outcome. However, once the results are announced, a sell-off may follow on the news. Against this backdrop, rebounds from 1.1195, 1.1240, and 1.1300 could present potential selling opportunities.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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