The euro has been under pressure, with EUR/USD near 1.15. EU and euro area economic sentiment indices have moved further below the long-term average of 100.
EU economic sentiment declined by 1.5 points to 96.7 in March. Euro area sentiment fell 1.6 points to 96.6.
The euro has been heavily sold due to stagflation and energy concerns. Rebalancing flows into the euro may be cautious because macro headwinds persist and price expectations are rising.
Monthly smoothed flows since the end of February show INR and EUR as the most-sold currencies. The sell-off is linked to balance of payments worries and stagflation fears.
Normal rebalancing would mean adding to INR and EUR and reducing exposure to CNY and BRL. The drivers behind recent positioning have not eased and may strengthen.
Overall uncertainty increased across sectors. Price expectations rose, indicating weaker growth momentum.
We are seeing the Euro continue to face significant pressure, with EUR/USD struggling to hold the 1.1500 level and recently touching a low of 1.1485. The latest flash estimate for April’s Eurozone Sentix Investor Confidence index dipped further to -18.5, confirming the poor economic sentiment. These figures underscore the market’s deep-seated stagflation and energy supply concerns.
The usual month-end rebalancing flows that might normally support the Euro appear hesitant. With last week’s flash Eurozone HICP inflation data coming in hotter than expected at 4.8%, the European Central Bank remains in a difficult position. This fundamental headwind suggests that fading any short-term Euro strength is the prevailing strategy for now.
For derivative traders, this environment points towards buying downside protection on the Euro. Implied volatility on one-month EUR/USD options has climbed to 9.5%, up from an average of 7.2% in the previous quarter, signaling that the market is bracing for larger price swings. We believe strategies like buying put options or establishing bear put spreads on EUR/USD could be effective in the coming weeks.
We are seeing a very different market than we did in the third quarter of 2025 when a temporary easing of energy prices sparked a brief Euro rally. That optimism has completely vanished, and the persistent macro headwinds are now more entrenched. This history makes us skeptical of any potential recovery for the currency in the near term.
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