Credit Agricole acknowledges the bearish sentiment surrounding EUR/USD due to Eurozone underperformance, political risks, and US-EU trade tensions. However, they maintain a neutral EUR/USD outlook in the next three to six months, expecting a recovery toward 1.10 in the longer term.
Key Points:
Bearish EUR/USD Drivers in the Near Term:
Cyclical Divergence → The Eurozone economy remains sluggish, while the US economy continues to outperform.Political & Geopolitical Risks → Uncertainty in the Eurozone, along with potential US-EU trade tensions, weighs on sentiment.Policy Divergence → The ECB is dovish and expected to cut rates further, while the Fed remains more neutral, keeping USD supported.Neutral EUR/USD Outlook for the Medium Term:
Credit Agricole does not expect a sustained decline in EUR/USD, despite near-term pressures.They see limited downside beyond current levels, as some of these risks are already priced in.Long-Term Recovery Toward 1.10:
Over the next six to twelve months, they anticipate EUR/USD to gradually recover toward its long-term fair value of 1.10.This assumes US economic momentum slows, the Fed eventually eases, and Eurozone sentiment stabilizes.Conclusion:
Credit Agricole describes the current EUR/USD weakness as “Dark Before the Dawn”, believing the currency pair will recover in the longer term despite near-term headwinds. They expect EUR/USD to remain neutral in the next 3-6 months before moving back toward 1.10 in 6-12 months.
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