Euro "Remains in Overbought Territory" say Credit Agricole

April 14, 2025 - Written by David Woodsmith

STORY LINK Euro "Remains in Overbought Territory" say Credit Agricole

The Euro to Dollar (EUR/USD) exchange rate is currently trading just below 1.1400 after posting a net advance overnight.

According to ING, 1.11/1.12 is now going to be important support, and presumably the buy-side will now be EUR/USD buyers on dips as they wait for the tariff shock to materialise in hard US data.

It sees a near-term 1.12-1.15 range for the pair.

JP Morgan is forecasting further net gains to 1.15 and commented; The 90-day postponement of reciprocal tariffs offer a degree of relief, but 10% baseline tariffs and the ratchet on China to 145% mean cyclical and trade drags will linger.”

It added; “We see a meaningful chance of a US recession and US inflation looks poised to weigh on real yields to the dollar’s detriment against an overhang of foreign ownership of assets that may drag on USD via global asset reallocation or hedging.”

Several banks have pointed out that the relationship between yields which normally drives currency markets has broken down.

The dollar has been driven lower by unease over the US economy and risk of capital outflows with the tariff policy an important catalyst for a wider re-think on US exceptionalism.


In particular, the slide in bonds and the dollar in tandem has spooked investors.

If the normal relationship between yields and the US currency revives , there could be scope for a dollar comeback.

MUFG commented; “Based on data since the start of 2024, the 2-year EU-US swap spread is currently implying EUR/USD trading at about 1.0600.”

Credit Agricole added; “EUR/USD's fair value fell from 1.098 to 1.0707 due to falls in the Eurozone-US short-term rates spread, the Eurozone-US box yield spread and the outperformance of Eurozone equities by US equities.

The bank added; “All in all, the EUR remains in overbought territory.”

UoB noted overbought conditions; While further EUR strength is not ruled out, deeply overbought short-term conditions could lead to a couple of days of range-trading first.”

Even with the risk of correction, some investment banks see greater scope for further net gains and others are in the process of revising forecasts.


According to SocGen; “The warning is clear: the rest of the world is overweight US assets, and overweight the dollar which, in real effective terms, remains at levels we have not seen since the mid-1980s.”

Rabobank considers that vulnerability has increased; "The inability of the US Treasury market and the USD to function as safe havens over the past week has upended market norms and undermined the benefits to the US of ‘exceptionalism.’ If the cost of borrowing for the US Treasury continues to rise, the huge size of the budget deficit could start to matter in a way that it has not before. Last year, the US budget deficit stood at 6.4% of GDP."

Nordea also noted the importance of bond markets; “If more investors gradually become more sceptical of Trump’s policies, or fear a possible restructuring of government bonds, government yields could rise much more than we have seen so far. China, which is the world’s second-largest holder of US Treasuries after Japan, could choose to sell US bonds during an escalating trade war.”

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TAGS: Euro Dollar Forecasts