The bear market for the US dollar is not over yet, the Euro is expected to return to the milestone level of 1.20.

As investors increasingly bet on the diverging rate paths of the Federal Reserve and the European Central Bank, the euro, the common currency of Europe, is expected to continue to benefit, with the euro expected to rise to the milestone level of 1.20 US dollars in the near future. During the European trading session on Tuesday, the euro rose 0.1% to 1.1780 US dollars, reaching its highest level since July 24, before slightly retracing its gains ahead of the European Central Bank decision on Thursday. The options market has reinforced this trend, with the so-called "risk reversal" indicator showing strong bullish sentiment across different tenors. Data from the Depository Trust & Clearing Corporation (DTCC) in the United States shows that one-third of the bullish option bets since last Friday are targeting a breach of the 1.20 US dollar level. The latest moves and forecasts for the euro against the US dollar further strengthen the so-called "long-term bearish logic" for the dollar. "The next key resistance level is near 1.18 US dollars, and triggering stop-loss orders could accelerate the uptrend," said Thomas Bureau, Co-Head of FX Options at Industrial Bank in France. Bullish bets on the euro are picking up momentum traders are confidently positioning themselves for a bull run in the euro above 1.20 US dollars. Last week's extremely weak US nonfarm payroll data pushed the euro exchange rate further, strengthening expectations for a deeper rate cut by the Federal Reserve (including markets starting to bet on a 50 basis point cut in September) and keeping pressure on the US dollar bulls. Meanwhile, the European Central Bank has paused its loose monetary policy cycle, with the market only assigning less than a one-third probability of a rate cut in December. If today's US job data receives another very negative revision, it could further support the euro exchange rate. With the US unemployment rate at its highest since 2021, some Wall Street analysts believe there is a possibility of a major rate cut by the Federal Reserve. Strategists from Standard Chartered now expect the Fed to cut rates by 50 basis points next week. "The underlying cyclical support for the US dollar has deteriorated, reflected in a significant narrowing of the euro-US dollar spread, which is consistent with the fair value of the euro/dollar in the financial markets being in the 1.18-1.20 range," said George Saravelos, Global Head of FX Research at Deutsche Bank. "It is obvious that if the Fed further cuts rates after September, it will increase the willingness of foreign investors to hedge against US dollar assets," he added. The euro also ignored political risks in France, rising 0.4% on Monday, even as Prime Minister Francois Beru lost a vote of no confidence in parliament, which also saw the cost of hedging against a strengthening euro rise. Analysts at Danske Bank in Denmark wrote in a report that wider French spreads could limit the upside potential of the euro, but they still believe that the common currency is undervalued compared to the dollar. "The French government may face a sovereign rating downgrade after Beru's ouster, although considering its near balance of payments, a full-blown financial crisis is still unlikely to occur," said Holger Schmieding, Chief Economist at Berenberg. "ECB President Lagarde must tread carefully on Thursday, neither implying that the ECB might ultimately bail out a recalcitrant fiscal offender, nor taking too hawkish a stance that would disrupt markets still giving France the benefit of the doubt," he emphasized. Technical indicators are turning bullish on the euro exchange rate, particularly with the formation of a so-called "bullish belt line" on the monthly chart, indicating a high probability that the euro will retest the interim high of 1.1829 US dollars in July. In the short term, the so-called "greed-fear" indicator shows that euro bulls are in the strongest position in two months. Morgan Stanley's blockbuster forecast: The US dollar bear market is far from over Wall Street financial giant Morgan Stanley recently released a report stating that the US dollar bear market is far from over, with the current decline in the dollar only "halfway" along the way. The core argument of Morgan Stanley's report points directly to expectations of a policy shift by the Federal Reserve. Morgan Stanley's US economic team believes that the Fed is now "more willing to tolerate the threat of higher inflation." This also means that if the US benchmark interest rate continues to fall under the guidance of the Fed, and inflation stubbornly remains above target due to the transmission of tariffs to consumer prices, real yields in the US will be eroded. In addition, the pricing trend for a more pronounced easing by the Fed continues to rise, with the institution's rate team continuing to be bullish on 5-year US bonds, expecting the front end of the yield curve to price in a deeper rate-cut cycle. Global investors are preparing for the continued collapse of the "American exceptionalism" narrative, the possibility of the Trump administration continuing to threaten the independence of the Fed, and the significant impact of the weakening US economy and Fed rate cuts following the extremely weak nonfarm payroll data, all factors that continue to drive the dollar towards a long-term bear market trajectory. "The recent actions of the US government have had a long-lasting impact on the US dollar," said Jayati Bharadwaj, Head of FX Strategy at TD Securities. "This is eroding the US dollar's status as a safe-haven asset, and the risk premium should begin to weigh heavily on it." "If Trump resets his relationship with the Fed, it would be similar to negative dynamics seen in emerging markets elsewhere, which are not necessarily beneficial for a country's sovereign currency," said Sahil Mahtani, Head of the Investment Research Institute at London investment firm Ninety One Asset Management. Under the threat to the independence of the Federal Reserve, heightened market risk aversion, and increasing anxiety over overvalued tech giants, safe-haven assets like gold and silver have been eagerly sought after by market investorsgold has broken through $3600 and continues to set new historical highs, while the US dollar remains weak due to continued threats to the independence of the Federal Reserve.