Synopsis:
SocGen expects EUR/USD upside momentum to slow, as markets may have overpriced a US slowdown that has yet to materialize. While Europe’s growth prospects have improved due to expected defense spending, the FX market may have moved too far ahead of fundamentals. As doubts emerge over the extent of US economic weakness, EUR/USD may pause and consolidate rather than continue its sharp rise.
Key Points:
1️⃣ EUR/USD Back to November Levels, But Fundamentals Differ 📊
- US growth forecasts for 2025 are now 1% higher than in November.
- Eurozone growth forecasts are 0.3% lower, despite fiscal optimism.
2️⃣ Market May Be Overpricing US Slowdown 🇺🇸
- Trump’s policy actions will hurt growth, but the extent remains uncertain.
- Markets have assumed a significant slowdown that hasn’t happened yet.
3️⃣ EUR/USD Rally Needs to Slow & Let Reality Catch Up 🔄
- The FX market is forward-looking, but moves may have been too aggressive.
- Some pullback or consolidation is likely as investors reassess economic expectations.
Conclusion:
SocGen sees EUR/USD momentum fading in the near term as markets reassess US economic risks. While European fiscal expansion is a positive, the US slowdown narrative may have been overstated, suggesting a more measured pace for further EUR gains.
