In a major breakthrough in the currency markets, EURUSD crossed decisively above the 1.1420 level last week in thin holiday trade. This new movement is indicative of a massive change in market sentiment. Such a reversal is happening right at the time that the correlation between the U.S. dollar index (DXY) and 10-year Treasuries has flipped completely. It crashed from a robust 0.70 at the beginning of 2025 to almost zero, marking a complete reversal of long-held conventional market wisdom. Analysts observe that if driven by further headlines, the EURUSD could potentially surpass the 1.1450 level, adding to the intrigue surrounding the euro’s performance against the dollar.
On a seasonal basis, EURUSD tends to get really jammed up at the 1.1250 area in the summer months. Right now this level is a magnet for traders. Signs are growing that several economic factors, including deficits, auction results, and unexpected U.S. growth readings, are beginning to weigh on the dollar. We look forward to seeing the currency closer to its fundamentals. It’s not just the euro’s historic high against the dollar. This surge comes on the heels of European Central Bank President Christine Lagarde’s remarks regarding a potential “global euro moment,” raising hopes and speculation that Europe is about to give the world its next great reserve currency.
At present the dollar is 4.5% below par with the euro. It points to a 3.5% discount vis-a-vis the yen, which just underscores its weakness vs these currencies on a relative basis. This difference highlights a broader trend in which EURUSD has decoupled from DXY, breaking away from long-running correlations to DXY and other proxies. The 60-day inverse correlation between 10-year Treasuries and DXY paints a more alarming picture. This decoupling helps us see that outside factors have never been more influential in shaping currency values than we understand.
The dollar limps into the week like a punch-drunk prizefighter half-a-round after taking his last knockout punch. It continues to wrestle with the challenges of April’s tariff battles. President Donald Trump has recently shown some restraint in his desire to slap a 50% tariff on the EU. Plenty of uncertainty remains, especially U.S. economic policy and how it will affect the strength of the dollar.
Traders are keenly watching the possibility of a retest of that 98.50 floor on the DXY index. Analysts argue that under the current arrangement, the chances of this happening are almost nonexistent. They think a fast climb above 100 is more possible. We suspect economic data releases will be increasingly important in guiding market expectations over the next several days. Durable goods orders are likely to retrace from March’s outrageous numbers. Thursday’s Personal Consumption Expenditures (PCE) deflator gets its first major test. It needs to underpromise to overdeliver on market expectations so that fears of “stagflation” don’t come to rule Wall Street’s trading terminals.