Nordea analysts say the recent period of strong US economic performance may have reached its high point. They also say foreign investors are still heavily invested in US assets. That combination could weaken the US dollar further, which would support the euro and push EUR/USD higher over time. They add that even after a sharp drop over the past year, the US dollar is not weak by historical standards. They also note that low term premiums suggest foreign investors have not fully reduced their US exposure.

Foreign Allocation And Dollar Rebalancing

They give a simple rebalancing example. If foreign investors cut their allocation to US assets from 50% to 40% while the US still runs a current-account deficit, foreigners cannot all sell those assets to US buyers. They say the adjustment would require a roughly 20% fall in the relative value of US assets. They argue that part of the dollar’s strength over the past two decades came from weaker conditions in Europe after the European debt crisis. They point to austerity and small deficits as key factors. They say this could change as Europe increases spending on defence and infrastructure. They add that higher investment can lift growth. With unemployment already low, it could also increase inflation pressure and push interest rates higher. They say this would make the euro more attractive as an alternative to the US dollar. Based on recent data, we believe the long-running trend of US economic outperformance is likely ending. January’s US advance GDP estimate showed growth slowing to 1.5%. At the same time, Eurozone flash PMI surprised to the upside at 51.5. That points to a real shift in momentum. Traders should consider positioning for a continued rise in EUR/USD, as the economic backdrop is now improving faster in Europe.

Positioning For A Stronger Euro

Even after the dollar’s notable decline through 2025, it is still strong by historical standards. That leaves room for more downside. US Treasury data for December 2025 showed a fourth straight month of net foreign selling of US assets. This supports the view that global investors are reducing an overweight position. This kind of structural shift supports strategies such as longer-dated EUR/USD call options aimed at a multi-month move. The story of European weakness that shaped the past decade is also changing. New joint investment in defence and energy infrastructure, accelerated by developments in the past two years, is starting to support growth and tighten labour markets. This can make inflation more persistent and could keep the European Central Bank more hawkish than the Federal Reserve. In this framework, reducing exposure to US assets can happen only if those assets fall in relative value, which implies a weaker dollar. Markets showed a version of this last year: the Dollar Index (DXY) fell nearly 9% in 2025 even though the US still ran a current-account deficit. The easier path for the pair still looks higher, which makes strategies like EUR/USD bull call spreads a cost-effective way to position for more upside in the weeks ahead. Create your live VT Markets account and start trading now.

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