The euro has staged its most impressive three-day rally since 2015, sending traders into a frenzy and fuelling speculation that the single currency could surge another 10% in the coming months. But is this truly the beginning of a long-awaited resurgence, or just another fleeting moment of optimism before reality strikes?

Hedge funds have been piling into options, betting that the euro could hit $1.20 within six to nine months—territory last seen in 2021; the options market is at its most bullish on the euro in five years. Meanwhile, data from the Depository Trust & Clearing shows that two of three options traded this week targeted further euro strength.
The recent surge—1.5% yesterday, reaching $1.0789, a four-month high—has been largely attributed to Germany’s decision to unleash hundreds of billions of euros on defence and infrastructure spending. A weak fiscal stance from Europe’s economic powerhouse? Surely nothing to worry about!

Analysts were bracing for euro-dollar parity only a few months ago, as the eurozone’s economic prospects looked increasingly grim. Fast forward to today, and traders are suddenly convinced the euro is about to embark on a multi-month rally.
Crossing the closely watched 200-day moving average has only added fuel to the fire. Should the euro close above this level, technical traders might see this as a signal for further gains, potentially testing last year’s highs around $1.12.

This newfound optimism starkly contrasts the dominant narrative earlier this year, when concerns over sluggish eurozone growth and widening yield differentials pointed to continued dollar dominance. The turning point? A combination of Germany’s fiscal expansion and growing fears that Trump’s aggressive trade policies could do more damage to the US economy than the rest of the world.
This could mark the beginning of a new trend, potentially reversing the multi-year rally of the US dollar. But this is quite the statement. And yet, not everyone, including me, is convinced this is a lasting trend.
The dollar depreciation trend may continue in the short term, and while we have abandoned the call for EUR/USD to drop below parity, renewed dollar strength is still likely.

The euro might be enjoying its moment in the sun, but let’s not forget that the structural issues plaguing the eurozone haven’t magically disappeared overnight. The ECB remains hesitant to aggressively raise rates, unlike the Fed, which might be forced to tighten further should Trump’s policies stoke inflation. And let’s not even get started on the euro’s long-standing struggles to establish itself as a genuine alternative to the dollar in global finance.
For now, traders are happy to ride the wave of euro optimism, but history has taught us that such sentiment-driven rallies often meet an inconvenient dose of reality. Whether this is the start of something bigger or just another short-lived bounce remains to be seen.