Lagarde Says Stronger Euro Creates Opportunity for Europe. Forecast as of 21.05.2025
The rumors of coordinated currency intervention after the G7 summit, coupled with Christine Lagarde’s comments on opportunities for the euro, are pushing the EURUSD pair higher. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- During the G7 summit, the US may demand a weaker dollar.
- Christine Lagarde does not see the strengthening of the euro as a threat.
- The derivatives market is set for a decline in the main currency pair.
- While the EURUSD pair is trading above 1.125, long trades can be considered.
Weekly US Dollar Fundamental Forecast
It takes two to tango. With ECB President Christine Lagarde calling the euro’s strength an opportunity rather than a threat and Donald Trump saying that a strong dollar hurts US manufacturers, the future of the EURUSD pair seems pretty clear. It appears that the rally of the main currency pair is beneficial to both the US and Europe.
There is no smoke without fire. This is what investors decided amid the strengthening of the South Korean won and the Japanese yen during the negotiations between Washington, Seoul, and Tokyo. The talks focused on issues related to currency policy. Despite the efforts of all parties to assure the markets of the absence of any intervention, investors have discerned potential discrepancies.
Citi anticipates that the US will advocate for a coordinated intervention in the Forex market at the G7 finance ministers and central bank governors summit, emulating the strategy of the Plaza Accord in 1985. Tariff reductions have been a key factor in this strategy, prompting the US to adopt a policy of weakening its own currency to balance its trade deficit. As expected, the yearly risk reversals for the US dollar have reached a record low.
USD Index Risk Reversals
Source: Bloomberg.
The euro and Japanese yen are considered to be the main beneficiaries of coordinated currency intervention due to the high weight of these currencies in the USD index. Coupled with Christine Lagarde’s comments about the loss of confidence in the US dollar, which is more of an opportunity than a threat for the EURUSD pair, this has led to monthly risk reversals for the single currency rising to their highest levels in two decades, excluding the COVID-19 pandemic period.
EURUSD Risk Reversals
Source: Bloomberg.
As a result, both in the long term and in the short term, markets anticipate the EURUSD rally to persist. Despite the divergence in central bank monetary policy, Deutsche Bank has set a target of 1.2. The Fed signaled its readiness to adopt a more cautious stance, while the ECB is open to maintaining its cycle of rate cuts.
ING suggests that the G7’s stance on monetary policy is unlikely to encounter any alterations. However, should any such changes arise, they are likely to be interpreted as another bearish factor for the US dollar. The EURUSD pair has the potential to continue its rally, driven by buying the rumors, at least until the results of the summit are known. Following this, there is a strong likelihood of selling the news, as was the case with the Japanese yen in early May amid trade negotiations between Washington and Tokyo.
Weekly EURUSD Trading Plan
In such conditions, the optimal strategy is to maintain long positions on the EURUSD pair that were formed earlier at 1.1065 and 1.1225. The key support levels are 1.1285 and 1.125. A rebound from them will provide an opportunity to open more long positions.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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