Synopsis:

SocGen sees this week as an opportune time to buy EUR/USD calls, with multiple bullish triggers emerging. Declining US yields, potential soft US data, and evolving geopolitical dynamics could push the euro higher. Additionally, Europe’s increasing defense spending remains an underappreciated factor that could drive long-term EUR gains.

Key Points:

1️⃣ US Yields Falling, USD Hasn’t Adjusted Yet 📉

• 10-year relative yields are above 1.08, but the dollar has yet to react.
• Friday’s ISM and NFP data could be decisive—weak numbers may accelerate USD downside.

2️⃣ Ukraine Ceasefire Talks Could Lift EUR 🌍

• The euro still carries a war risk premium from the 2022 invasion.
• Progress towards a ceasefire could remove a major drag on the currency.

3️⃣ European Defense Spending to Support EUR 💶

• Ursula von der Leyen outlined a potential €800bn defense spending package.
• This demand shock could boost European economies, strengthening the EUR.

4️⃣ Capital Flows Could Favor EUR Over USD 💵

• As the US economy slows, global investors may shift capital back to Europe.
• Profit-taking on US assets could reinforce EUR demand.

Conclusion:

SocGen recommends positioning for EUR/USD upside, as falling US yields, geopolitical shifts, and underpriced European fiscal expansion create a bullish setup. A soft US jobs report could be the catalyst needed to push the pair higher, making now an attractive time for EUR/USD calls.