Supporters of the Euro increase in their first real conviction test with the trade agreement concluded between the European Union and the United States, which casts doubt on the sustainability of one of the most popular trading strategies of 2025.
The euro, which had reached a four-year summit earlier this month at $ 1,1830, was recently traveled to $ 1,1554 after having undergone its greatest decrease on two sessions on Tuesday since April, following the EU agreement on a 15 % tariff on its exports to the United States-a rate certainly half a smaller than that initially threatened by President Donald Trump, but much higher than 1.5-2 % Applied before returning to the White House.
If the single currency was slightly rebounded on Wednesday, it nevertheless moved to its first monthly decrease of the year, with a decline of almost 2 % in July.
It is a notable reversal. The euro had won 14 % in the first half, its strongest increase since its creation, investors rushing into the common currency following the announcement of a historic turn of German fiscal policy, while the erratic trade policies of Donald Trump diverted the flows of American assets.
But these two factors are today called into question by the agreement: the European economy will undergo the impact of new prices, while the agreements made by the United States with the EU and other partners have attenuated fears of a slowdown marked across the Atlantic.
“The bullish bet on the euro is undeniably subject to a reality test this week,” said Bruno Schneller, managing director at Erlen Capital Management.
“The strong fall of the Euro/dollar on Monday seemed to go beyond a simple reaction to the titles: it revealed how extremely the positions had become on one of the most shared convictions on the market. »»
“What was struck was not only the extent of the movement, but the total absence of support when falling. »»
Before the weekend, speculators had an upward position on the term contracts on the euro worth $ 18.4 billion, the largest since December 2023, according to weekly data from the Commodity Futures Trading Commission.
This position has been built since last December. At the start of the year, speculators had one of their largest lowering positions on the euro for almost five years.
Relative economic performance
The euro was also clearly weakened against other currencies on Monday, yielding 0.8 % against the pound sterling and 0.7 % against the Japanese yen, after a period of recent winnings.
However, most of its movements, both upwards this year and down this week, was faced with the dollar. In terms weighted by exchanges, the euro has only increased by approximately 5 % since the start of the year.
And its gains against the greenback already slowed down, the initial pessimism towards the United States having dissipated thanks to solid economic indicators and good results of companies, reinforced by a series of trade agreements with Japan and the EU, as well as negotiations in progress with China.
“The trade agreement (EU-States) has raised a potential obstacle (for the euro), but it also dispelled an uncertainty for the dollar, which lets the euro appear a little overvalued,” analyzes Michael Metcalfe, responsible for macroeconomic strategy at State Street.
But the end of the Euro rally against the dollar is not yet acted.
“The vast majority of actors – including us – think that this is only a correction in a Euro/dollar background trend,” said Chris Turner, a global research manager at ING.
According to him, the main test will be on the side of the dollar, investors who have now digested the impact of the commercial agreement on Europe.
The attention therefore turns to the economic statistics of the week, in particular on employment and inflation in the United States, growth in Europe, as well as the meeting of the Federal Reserve on Wednesday.
The Fed should maintain its unchanged guiding rates, which could arouse new virulent criticism from Trump, who campaigns for massive decreases. This context matters for the dollar. The American motto had also dropped sharply earlier this month, including in front of the euro, when Trump seemed to want to dismiss Jerome Powell, the president of the Fed.
And even by putting aside the trade agreement, there are reasons to be optimistic for Europe, in particular with regard to the expenses of Germany.
“We have not changed our perspective on the risks of rising growth in Europe,” says Russel Matthews, portfolio manager at RBC BlueBay Asset Management, which remains neutral on currencies, balancing “long -term structural biases for a lower dollar” with “a more positive short -term technical table”.
“The new account that the United States has obtained better agreement has somewhat tarnished the potential for increases linked to developments of the last three to six months in Europe, but this has not fundamentally changed this dynamic. »»
