Synopsis:

ANZ warns that recent EUR/USD gains driven by optimism over Trump-Putin talks on Ukraine may fade quickly if negotiations stall. Additionally, weak euro area data and ECB easing risks continue to weigh on EUR fundamentals, making extended EUR rallies an opportunity to short EUR/USD.

Key Points:

1. Trump-Putin Talks Drive Temporary EUR Gains:

   • Market optimism over a potential Russia-Ukraine resolution has supported EUR.
   • However, the success of these talks remains uncertain, and if they stall, EUR gains could reverse quickly.

2. Weak Eurozone Data Reinforces Bearish Outlook:

   • December Industrial Production fell -1.1% m/m—the largest drop since September 2020, signaling continued economic weakness.
   • Germany’s January Harmonized CPI met expectations, showing stability but not enough strength to fuel sustained EUR upside.

3. ECB Easing Still a Risk:

   • The ECB may need to ease further as eurozone growth continues to stagnate.
   • Rate cut expectations could cap EUR gains, keeping EUR/USD vulnerable to downside.

Conclusion:

While EUR/USD has rallied on geopolitical optimism, ANZ remains cautious on its sustainability. Given weak euro area data and ECB easing risks, extended EUR rallies may present an opportunity to short EUR/USD—particularly if talks between Trump and Putin fail to progress.