Last week, the EUR/USD broke out of a bear trend that had been ongoing since 2008. The new support level is now at 1.11/1.12, with buyers likely to enter on dips as they anticipate a tariff impact on US data.
There is speculation about China selling US Treasuries, though recent fund flow data showed net positive flows into the long-term Treasury market. Most investments are funneling into money market funds and the short-term Treasury curve, with the March TIC data to be closely analysed for any Chinese activity.
Eurusd Dynamics
The EUR/USD is likely to fluctuate between the changing US economic conditions and a dovish European Central Bank. The ECB might face challenges with the rising trade-weighted euro but acknowledges its benefits, as seen with German Bunds outperforming US Treasuries recently.
Current EUR/USD trading levels exceed what short-term rate differentials suggest. There is potential for a move towards 1.15, but a nearer term range of 1.12-1.15 is expected rather than an immediate shift to 1.18/20.
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We’ve seen an important turn in EUR/USD dynamics—one that interrupts a decade-and-a-half of downward pressure. What began as a long grind lower may now be giving way to something structurally different. Price managed to cut through longstanding resistance, and in doing so, it’s opened up a new layer of support around 1.11 to 1.12. That floor is not arbitrary—it’s now the area where the market seems willing to step in and buy dips, particularly on any U.S. data weakness linked to trade actions.
There’s ongoing chatter about China potentially offloading some U.S. Treasuries, yet the hard figures don’t echo that narrative—for now. Looking at recent fund flows, there’s still a net inbound movement into longer-dated Treasuries. A lot of this is linked to the cautious stance from domestic investors, parking capital in money markets or crowding into short-end maturities. It’s defensive positioning rather than conviction territory. When March’s Treasury International Capital (TIC) data shows up, it’ll be worthwhile to pay attention to what’s happening with official holdings—if there’s any noise about selling, that’s where it’ll show.
Eurozone Policy
Back in the eurozone, policy remains soft despite a strong currency on a trade-weighted level. The euro may be grinding higher, but the ECB isn’t yet acting in opposition. They seem to understand the indirect support they’re receiving from investors preferring Bunds over U.S. government debt, of which we’ve had several weeks’ worth of evidence. That’s helped keep risk premium pricing under control across Europe, even as the headline currency continues to rise.
Here’s where it gets interesting: the current strength in EUR/USD can’t be fully explained by the short-term interest differential anymore. If you stripped it back to just rate spreads, you’d expect the pair to sit closer to 1.08 or 1.09. So when the pair is holding above 1.12 consistently, it signals that other flows—possibly long-only real money, or hedging flows from equity positions—are playing a more dominant role.
From our vantage point, there’s a wide-open possibility of leaning towards the upper end of the 1.12 to 1.15 band, but not a quick sprint to levels like 1.18 or above. There are too many macro inputs still waiting to firm up—like U.S. inflation staying stubborn or central bank narratives shifting materially. Therefore, behaviour around 1.13 and 1.145 will act as useful zones to watch for optionality.
When managing short-term exposures, there’s scope to consider structures that assume a capped range. Volatility may not stay suppressed for long if U.S. positioning swings or Chinese flows create waves. Don’t rely on static assumptions, though—it’s going to be about constant reassessment. As always, much hinges on how Treasury yields react, and whether their relative attractiveness begins to fade in earnest.
We’ve noted the disconnect between FX spot and yields—in itself, that presents opportunity. For those focusing on derivatives, keeping trades bounded within the expected 1.12–1.15 area could offer more control over risk-reward. This isn’t the time to chase breakouts without hedges or wide collars. Monitor gamma sensitivities near 1.14, particularly in the front expiration curve where liquidity can dry up faster.
Careful sizing matters here. Price may look stable, but positioning isn’t.
