EUR is supported by trade surplus, EU-US talks, and Germany’s stimulus, but fading momentum keeps the outlook neutral. It may outperform weaker peers but lag stronger ones. In contrast, the USD continues to soften despite strong data and falling recession odds, with near-term sentiment boosted by trade optimism. However, long-term risks persist, keeping the USD outlook weak to neutral.

EUR: New reserve currency

The EUR’s position as the most liquid alternative to the USD and the euro-zone sizeable current account surplus are providing more support for the EUR in the current trading environment. And the prospect of peace between Russia and Ukraine, a development that could benefit the Eurozone’s trade balance further.

Meanwhile, markets also had some positive indications that trade negotiations between the EU and the US are progressing. The economic growth and sentiment in the euro area have held up better than many feared, the widening yield gap between German and U.S. government bonds, together with Germany’s announcement of a significant new spending package, has helped drive the recent appreciation.

However, it appears that the Euro has recently lost momentum. Traders and investors are no longer as eager to buy the currency, and the excitement surrounding the Euro is gradually fading. While there are still solid arguments in favor of a bullish Euro, but a fresh fundamental catalyst is needed to reignite interest. As a result, the baseline bias remains neutral for now, and expect the Euro to outperform weaker currencies, but underperform against stronger ones.

EUR/USD 4H

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