Outrageous Predictions
Executive Summary: Outrageous Predictions 2026
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EUR reverses initial strength after EU and US strike a trade deal
John J. Hardy
Global Head of Macro Strategy
Summary: With the announcement of an EU-US deal largely similar to the US-Japan deal, we are likely seeing peak optimism on the trade deal front, though Asia is a bit more subdued as China looks a bit more isolated.
Note: Today's update is a short-form one mostly aimed at covering the EU-US trade deal and updating the FX board readings and a few additional comments. See my update from Friday for a full preview of the coming week, which is chock full of key event risks, not least the heavy earnings season.
With the EU-US trade deal announced late yesterday, the EU has played more friendly with the US administration than I thought likely going into the trade negotiations, but was apparently disciplined by at least two things: first, the cost-benefit analysis of what the price would be should it decided to not bend to Trump’s terms and second, the geopolitical landscape of a hostile Russia at its borders and the EU-China talks making it clear that the “moving towards China” is a no-go. The deal itself was largely along the lines of the US-Japan deal, although many details are lacking. There is the broad 15% across the board level, not including steel and aluminum (which are at 50%, but there is talk of an eventual quota system), and promises that the EU will buy USD 750 billion in US imports, including energy and defense, and that European companies will invest USD 600 billion in the US.
The initial reaction saw the Euro rallying overnight as it looks like a “good deal” for the European economy relative to a trade war breaking out, but now the euro is selling off. The second read is that this is euro negative as the risk of US-EU hostilities has been eliminated for now, easing the pressure on Europe on the fiscal front. And all of the theoretical inbound investment into the US and the recent re-heating of all things AI and tech have already reheated enthusiasm for US-bound investment flows. Finally, positioning and consensus are skewed very heavily for USD weakness, so we could be in for a chunky further correction in the weak USD trend, depending on how this week plays out for tech earnings and the US jobs report on Friday.
One currency that should benefit from terms being agreed is SEK as this brightens the outlook for the European economy (and reduces risks to Sweden’s significant exports to the US as well.)
Chart: EURUSD
Today’s candlestick taking on an ugly look if we close near here or lower. This could set up a test of the 1.1557 range support, which might open a significant range to the downside. The first pivotal area of note below the round 1.1500 level and the zone around 1.1450 that was contested on the way up is perhaps 1.1357, the 61.8% retracement of the last large rally wave, but let’s see how we close today and this pivotal week through the Friday US jobs report.
FX Board of G10 and CNH trend evolution and strength.
Note: If unfamiliar with the FX board, please see a video tutorial for understanding and using the FX Board.
The Euro is reversing hard, though it will take some time for this to show up in the trend readings. Elsewhere, the JPY remains weak and sterling a bit less so, with the latter likely to get at least a minor boost if the euro suffers a larger correction (EURGBP weighing). Note the firming in the SEK over the last week (strong 2- and 5-day momentum changes)
Table: NEW FX Board Trend Scoreboard for individual pairs. Interesting now whether some of the well-established USD downtrends are reversed in the individual USD pairs outside of USDJPY and GBPUSD. USDCAD is at a tipping point here and AUDUSD isn’t far behind if this price action lower continues.
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