The euro at its lowest level in two years against the dollar, why?

The trend of stocks is influenced by opposing forces. Positive factors include favorable seasonality, buybacks, Trump deals, macroeconomic surprises and expectations of double-digit earnings growth. On the other hand, high valuations, a risk premium at historically low levels, a potentially less accommodative FED, the potential impact of tariff wars and rising geopolitical tensions weigh heavily.

THE Nvidia’s results were highly anticipated last week. The company closed the quarter with record revenue of more than $35 billion, up 94% from a year earlier, and earnings per share of 81 cents, both above forecasts. Dollar in great shape or rather euro in weakness?

From growth to future challenges

The data center division was the growth engine, with revenue doubling to $30.8 billion, although half of the revenue came from a small group of customers, cloud service providers such as Microsoft and Amazon. Despite strong demand for the new Blackwell chip and its predecessor Hopper, investors’ attention has focused on the more cautious forecasts for the final quarter of the year. Revenues estimated at 37.5 billion euros are lower than the most optimistic forecasts.

Additionally, profit margins fell from 75% to 73% last quarter due to production costs, although Nvidia remains the industry leader with significantly higher margins than its competitors and expects a recovery l next year. As demand for artificial intelligence continues to drive the business, Nvidia is in a dominant position, but challenges related to customer concentration and supply constraints must be considered.

Strongest profit recovery since 1990s

The quarterly earnings season is coming to an end, and Standard & Poor’s Reports Strongest Profit Recovery Without a Recession since the 1990s. With 95% of companies reporting, third quarter profit growth now stands at 8.2%, an average increase of 8.7% since the end of the contraction in the second quarter of 2023. A similar case occurred in 2017, during an unofficial mini-recession with Trump in the White House. This trend provides a solid basis for PEPs to absorb potential shocks linked to the introduction of new customs tariffs.

Signs of possible ECB intervention

Superstar dollar or rather weak euro? The signs of a possible recession in the emerging eurozone of the purchasing managers’ index for November, significantly weaker than expected. The euro/dollar once again tested the support at 1.05, already defended three times since the start of 2023. Confirmation of the break of this level on Thursday could encourage further weakening of the euro. The reduction in expectations of rate cuts in the United States has strengthened the greenback, unlike the euro zone, where signs indicate a possible more incisive intervention by the ECB, particularly in light of the leading indicators for the month of November.

Ce context of downward pressure on the euro continues to justify the portfolio’s overweighting of the dollar, despite the appointment of Scott Bessent as Treasury Secretary, whose more orthodox approach, focused on deficit reduction, could weaken the dollar in the future. Looking back at last week’s events, we see that the breakdown of support at the 1.05-1.12 range triggered further downward pressure, amplified by moves in the options market. The technical level violation actually triggered automatic recoveries, accelerating the move.