EUR/USD: Why the next move could be violently lowerEURO / U.S. DOLLARFX_IDC:EURUSDPanos22Everyone is positioned for a weaker dollar and is talking about inflation, twin deficits, and long-term USD decline. But markets don’t move on long-term narratives always, rather sometimes they move on liquidity stress. And right now, we’re entering a regime where USD demand can spike aggressively in the short term. The key driver: Global USD shortage With escalation in the Middle East and disruptions around key shipping routes (Hormuz, Bab el-Mandeb), we’re likely entering the worst commodity shock regime in decades. 1)Energy prices surge → oil, LNG, freight explode 2)Energy trade is priced and settled in USD 3)Importers (Europe, Asia) must secure dollars at any cost This creates a mechanical USD bid, regardless of macro narratives. That may lead to margin calls = forced USD buying, and increased hedging FX exposure. This is where things go nonlinear. 1)Energy price spikes → huge P&L stress across hedging books 2)Utilities, traders, corporates face margin calls 3)These are overwhelmingly USD-denominated Result: forced USD buying into strength Europe & Asia: Structural vulnerability -Europe = energy importer, already fragile -Asia (Japan, Korea, India) = even more exposed -If Middle East flows are disrupted → scramble for supply Who fills the gap? The US (LNG + energy exports) Which implies: More USD needed for trade settlement More USD needed for collateral But this isn’t just short-term — 3 macro forces reinforce it Even beyond the immediate funding squeeze, there are structural forces that can amplify USD strength: 1) USD = global reserve & funding currency In stress regimes, everything converges to one reality: the world is structurally short USD Trade, debt, collateral → all USD-based In volatility → global demand for USD spikes Liquidity stress = USD strength 2) Europe’s energy problem Europe is a net energy importer Higher energy prices = weaker growth + worse trade balance US = energy exporter → relative advantage Commodity shocks hit EUR much harder than USD 3) Policy divergence risk Even if markets expect a weaker USD… Inflation risk from energy could keep the Fed tighter while ECB is constrained by weak growth, and If the Fed stays tighter for longer than expected→ capital flows favor USD What this means for EUR/USD Even if the *long-term* USD story is bearish… Short term = liquidity dominates fundamentals If energy keeps rising and volatility increases then funding stress builds and then EUR/USD accelerates lower. My home takepoint This is not about classic “USD strength”. This is about: A global USD squeeze (energy + collateral driven) Amplified by structural macro imbalances That’s why I’m positioned for: -Short-term USD strength -EUR/USD downside acceleration -Potential move toward 0.90 in a stress scenario Nevertheless i believe, this is likely not permanent. Once: - Liquidity stabilizes - Energy normalizes - Policy reacts The longer-term “weak USD” narrative can return. But first…Markets may need to break something.