EUR/USD Sentiment Strengthens, But Trade War Fears Loom Over Euro’s Gains

EUR/USD Sentiment Strengthens, But Trade War Fears Loom Over Euro’s Gains

July 22, 2025 – Tredu FX Watch

EUR/USD positioning by speculative traders has reached its most bullish level in over 18 months, according to CFTC data. Net long exposure now accounts for 15.6% of open interest as of July 15—marking the highest level since January 2024.

Despite that, analysts note this remains a modest proportion, especially as EUR/USD trades nearly 10% higher than early 2024 levels, highlighting the influence of hedging flows and capital allocation amid broad dollar weakness.

Trade Tensions Threaten Euro Stability

Concerns are escalating around the US-EU trade negotiations, where fears of a no-deal scenario are rising. Several EU nations are calling for retaliatory tariffs, which could provoke a renewed tit-for-tat escalation with the US.

"The current positioning favors the Euro, but that could change rapidly if EU trade risks escalate and the bloc ends up disadvantaged versus countries securing separate US deals," analysts warn.

Monetary Policy Outlook

Market expectations currently price the next ECB rate cut in December, allowing the Euro some breathing room. However, that cushion may erode if trade policy developments worsen.

Key Highlights:

• EUR/USD net longs at 15.6% of open interest, highest since Jan 2024.
• Trade tensions between EU and US are worsening.
• Speculative sentiment is backed by capital and hedging flows.
• ECB not expected to act again before December.
• EU risk premium may rise if the bloc loses out in US trade policy.

Internal Links for Tredu.com:

• US Dollar Index Weakens Amid Trade Talks
• What CFTC Data Tells Us About Market Positioning
• ECB Rate Cut Timeline: What to Expect
• EU vs US: Tariff Deadlines and Market Reaction