ANZ highlights that safe-haven flows are increasingly favoring the euro amid U.S. trade policy turmoil, with the options market signaling aggressive upside positioning. The EUR/USD risk reversal curve is at its most bullish in five years, pointing to mounting expectations for further euro appreciation.
Key Points:
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Shift in Global Confidence:U.S. trade uncertainty is eroding confidence in the USD, while Europe appears insulated due to the tariff pause and Germany’s fiscal shift.
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Safe-Haven Flows into EUR:The euro is emerging as a defensive play, especially with investor focus on stability and diversification away from USD risks.
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Options Market Signals:The three-month EUR/USD risk reversal (calls vs puts) is at a five-year high, indicating strong demand for near-term euro upside.
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Volatility Term Structure Inversion:Short-dated EUR calls are now more expensive than longer-dated ones—showing traders are rushing to buy upside exposure in the near term.
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Policy Already Priced In:ANZ’s forecast for 75bp of ECB cuts in 2025 is fully priced, meaning rate policy is unlikely to drive EUR lower in the near term.
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Pullback Risk:A modest retracement to 1.12 is possible if U.S.-Europe trade negotiations improve, but momentum remains on the upside.
Conclusion:
The euro’s rally is being fueled not just by fundamentals but by option-driven momentum, with near-term volatility and risk reversals strongly favoring more gains. Unless trade risks dissipate significantly, EUR/USD is poised to remain well bid, with ANZ pointing to continued resilience and upside potential.
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This article was written by Adam Button at www.forexlive.com.