Goldman Sachs has raised its forecasts for the EUR/USD exchange rate. They expect it to reach 1.20 by the end of the year and 1.25 within the next 12 months. This change is mainly due to a new perspective on the US dollar, not because of optimism about the euro. Back in 2017, the euro was strong because of global growth and investments pouring into the Eurozone. Right now, it’s more about the weakness of the dollar, as data shows a trend of moving away from USD assets. In 2017, the euro was undervalued, but today it is generally overvalued. This means there is less chance for significant growth in its value. The current situation is more focused on the dollar’s adjustment than on the euro’s increase in value. The changing landscape for the USD does support some gains for the EUR/USD pair, but it doesn’t have the same advantages as past trends. This means any rally will likely be more modest than in earlier periods of dollar decline. Goldman Sachs expects further rises for EUR/USD, mainly due to a weak dollar and changing global investments. This anticipated rally is expected to be stable and limited, potentially reaching 1.25 but not experiencing the rapid increases seen before. What’s important to understand is that the expected movement in the EUR/USD pair isn’t about a rise in the eurozone’s economy. Instead, it reflects lowered expectations for the dollar. Back in 2017, a sense of growth pushed the euro higher as investors were eager to move money into the Eurozone. Today, the euro is less appealing, making it harder for its value to rise significantly. Right now, the euro’s increase is mainly due to a weaker dollar. This is a long-term change, not a quick reaction to interest rates or economic data. More institutions are starting to diversify away from holding too many dollar assets. Zhang’s team emphasizes that although the dollar is still very important, it’s under new scrutiny. So what does this mean for those looking at interest rates or positioning in the near term? It suggests this is not a time for expecting large shifts based on euro strength alone. Any gains will be gradual rather than explosive. Since the euro is perceived as slightly overvalued, it is difficult to build firm expectations around its strength. The strategy should involve considering ongoing but moderate challenges for the dollar. Any trades targeting EUR/USD gains should be constructed with this in mind, focusing on steady growth rather than waiting for a breakout. It’s about being patient and taking advantage of opportunities when the dollar weakens. The predicted level of 1.25 doesn’t suggest an urgent demand for euros. Thomas’ analysis supports a weaker dollar, which will change slowly over the year—not all at once. Positions should be timed carefully, especially when the market shifts away from long dollar positions due to economic sensitivity. We should also keep an eye on price movements in option markets. Though volatility hasn’t increased much, even a slight rise in spot rates should lead to higher implied rates. There is still room for moderate directional strategies. However, any high-strike calls should be chosen wisely, with expiration dates that allow time for the dollar’s decline to happen without depending on quick movements. The key is to avoid heavily investing in short-term gains unless you’re hedging. Positions for long-term EUR/USD gains look more solid right now due to broader economic trends. Strategies should be designed to take advantage of where it makes sense, such as longer-dated risk reversals, supporting a gradual decline of the dollar rather than focusing on euro-driven increases. In summary, a calm approach will pay off—focus on positioning correctly as the dollar gently weakens rather than betting on the euro taking the lead.

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