The blue wave swept markets, and the euro was among the first beneficiaries, emerging as one of the main winners of the US midterm elections. The vote functioned as a referendum on three key issues: the Middle East conflict, inflation, and data-center construction. Stocks and bonds rallied, while oil and the dollar fell. Vice President JD Vance blamed the war for Republican losses, and markets interpreted Democratic control of Congress as a signal that the conflict may end soon. The risk premium in Brent prices began to ease.

Lower oil is a benefit for the eurozone, a large energy importer. Over the summer, Brent's return to pre-crisis levels pushed EUR/USD toward $1.17, but a subsequent oil surge hurt the currency bloc more than the US, sending the pair lower. Hopes of narrowing that gap are giving the euro a firmer footing again.

European inflation dynamics

A bullish factor for EUR/USD is accelerating euro-area inflation — up from 3.8% to 4.0%, the highest reading since September 2023. This raises the odds of an ECB deposit rate hike in December.

The dollar is also under pressure as US inflation expectations fell, with the market-implied figure sliding from 2.7% to about 2.1% over the week. That gives the Fed room to be cautious on further tightening and prompts speculators to close dollar long positions. Equities rotated noticeably: data-center worries hit chip makers led by NVIDIA, while Apple, Meta, and Alphabet rallied, proving that the blow to American exceptionalism is no myth.

Dynamics of US inflation expectations

Signs of US economic slowing are appearing: ISM services activity in October expanded at the slowest pace in three months. Robust ADP employment data did not move EUR/USD much because investors remain confident in the labor market and tie Fed decisions more to inflation dynamics.

The eurozone economy has demonstrated surprising resilience to ECB tightening, US tariffs, and high energy costs. Falling oil prices could become a tailwind, while Democratic limits on data-center builds would trim US GDP. However, the president still has veto power over congressional attempts to restrict AI, so the net effect remains uncertain.

Therefore, EUR/USD is supported by cheaper oil and the ECB's hawkish tilt. Offsetting risks include a potential presidential veto on AI curbs and continued US labor market strength.

Technically, the daily chart shows that EUR/USD is completing a double-bottom reversal pattern. Long entries could be scaled in on consolidation above 1.124, with initial positioning off the inner-bar high near 1.121.