Synopsis:

Goldman Sachs notes a notable shift in market sentiment regarding widespread short positions in the USD, suggesting caution over how much further USD weakness can persist.

Key Points:

• There is growing caution about the extent of USD weakness driven solely by a reevaluation of Fed and US exceptionalism.
• The market is currently heavily short on USDs, prompting a resurgence in interest for EUR/USD downside.
• Recent data from Europe has led to increased expectations for the next ECB cut, influencing sentiment.
• Goldman Sachs’ strategy team indicates that the fair value for EUR/USD, based on March 2025 rates pricing, is closer to 1.0950.

Conclusion:

The analysis highlights a potential stabilization in USD valuation amid heavy short positions, with the EUR/USD fair value reflecting adjustments in market expectations.