Change of fortune
The Euro was one of the favourite FX picks amongst analysts at the start of the year. The debate that rears its head amongst policy makers every time EURUSD exceeds 1.20 was also underway: should the ECB be worried about currency strength in the Eurozone. The forecasts at the start of the year and even through the US-Iran war suggested yes, they should be worried. The reality today is a resounding no, with forecasts and spot pricing alike reflecting a shift in sentiment away from the Euro.
At the start of the year, it seemed the Eurozone was entering a hiking cycle. Inflationary pressure was building and the Eurozone economy appeared robust enough to endure hikes. Fast forward to today and the ECB has delivered one hike in June but the prospect of more seems fragile, if not abandoned as an initiative altogether. Recessionary risks throughout the Eurozone and within its most economically significant member state, Germany, have threatened to derail that path. Supply-push inflation is also receding with energy prices normalising gradually as tensions in the Middle East appear to subside.
To reflect this new Euro-negative reality many key players have abandoned long-Euro positions particularly amongst EURUSD as well as EURGBP. Amongst those institutions is JP Morgan who now holds a mid-2027 forecast of just 1.10 on EURUSD. It is not alone in those pessimistic forecasts for the Euro. A major technical level has been breached in EUR/GBP prompting significant defensive flows in the market as traders move to manage or unwind a trade that held high conviction rates earlier this year.
Discussion and Analysis by Charles Porter
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