Synopsis:

Goldman Sachs revises its EUR/USD forecasts upward, citing relative equity underperformance for EUR-based investors, diminishing foreign appetite for US assets, and a confirmed slowdown in US economic activity.

Key Points:

• USD-Based Underperformance:

  • US equities may appear flat in USD terms, but for EUR investors, they are down 8% YTD, making EU equities relatively more attractive.

• Shift in Foreign Investment Preferences:

  • A less hospitable US investment climate is pushing global investors toward diversification away from the US dollar and dollar-denominated assets.

• Confirmation of US Slowdown:

  • Recent macro indicators support a narrative of slowing US economic activity, reinforcing the case for continued USD depreciation.

• Forecast Revisions:

  • Goldman raises EUR/USD targets to:

    • 1.17 in 3 months

    • 1.20 in 6 months

    • 1.25 in 12 months

  • These are up from 1.12, 1.15, and 1.20, set after the Liberation Day policy announcement.

Conclusion:

Goldman Sachs maintains a structurally bearish USD outlook, driven by macro divergence and a global reallocation of capital. The EUR/USD uptrend, in their view, has further to run, with 1.25 now the 12-month target.