Experts Agree: Dollar Weakness Supports EUR/USD Short-Term Upside

During Friday's European trading session, the euro extended its strength against the dollar, trading near 1.17072 after earlier touching its highest level in more than three months. Broad dollar weakness is serving as the core driver behind the euro's rise, with ongoing concerns over Federal Reserve policy independence and the U.S. economic outlook continuing to pressure the greenback.

**Dollar's Weak Stance Hard to Change**

Data from the U.S. Commodity Futures Trading Commission shows that the market has maintained a net short position on the dollar since April this year, reflecting persistent bearish sentiment among investors toward the dollar's outlook. Goldman Sachs strategists noted that against a backdrop of solid global economic growth, Fed rate cuts, and other central banks holding steady, the dollar is likely to continue weakening. Concerns over Fed independence have further intensified dollar pressure, with policy uncertainty rising significantly.

**Euro Appreciation Raises Economic Concerns**

A stronger euro is placing notable strain on Europe's export-oriented economies. German Chancellor Merz noted that dollar weakness has already led to a significant decline in price competitiveness for German exports. Dirk Jandura, president of the German Wholesale and Foreign Trade Association, said mid-sized companies have limited hedging capacity and find it harder to cope with exchange rate fluctuations. European Central Bank President Lagarde also warned that given the limited size of euro-denominated bond and equity markets, the financial system cannot fully absorb short-term capital inflows, further amplifying upward pressure on the euro.

**Institutions Generally Bullish on Short-Term Outlook**

Looking ahead, multiple institutions hold an optimistic view on the euro. Morgan Stanley's latest report forecasts that the EUR/USD exchange rate could reach 1.23 by the second quarter of 2026, as unconventional factors continue to pressure the dollar. Analysts surveyed by Bloomberg expect the euro to reach 1 euro to 1.21 dollars next year. However, analysts at Crédit Agricole hold a differing view, expecting the euro to retreat to around 1.10 next year. ECB policymakers have stated they will closely monitor the potential impact of exchange rate movements on the economy and will take intervention measures if necessary.