EUR Overvaluation Analysis

CACIB argues that the EUR is significantly overvalued against the USD based on both short-term (1.16) and long-term (1.1257) equilibrium models. They cite weak Eurozone productivity, high energy costs, and shifting capital flows as primary reasons for this valuation gap.

Key Takeaways

• 1.The EUR appears overvalued against the USD, with the EUR NEER 41 hitting all-time highs while fundamentals like productivity and terms of trade have worsened.
• 2.Short-term FX analysis places the EUR/USD fair value at 1.16, meaning the current spot price trades at a considerable premium.
• 3.Long-term fair value (VALFeX) is estimated at 1.1257, depressed by low relative productivity, energy costs, and negative real rate spreads vs the US.

Table of Contents

• EUR: more expensive than you think
• EUR strength is about more than just EUR/USD
• EUR valuation matters
• EUR/USD short-term fair value
• EUR/USD long-term fair value
• Conclusions
• Red Mount Analytics
• Global Markets Research contact details

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