Crédit Agricole - EUR: a peace dividend?
Trades, and thoughts on how markets are driven by subjective value and entrepreneurial foresight
EUR: a peace dividend?
Credit Agricole’s FX Daily published a note by valentin.marinov@ca-cib.com
The EUR regained some ground on the back of comments by US President Donald Trump yesterday about the call he had with Russia’s President Vladimir Putin. Among other topics, the two leaders seemed to have discussed the start of negotiations to end the war in Ukraine “immediately”. Subsequent comments by Ukrainian President Volodymyr Zelenskyy have also signalled that further discussions of a potential peace agreement would be planned. Despite these developments, market uncertainty could linger given that there a lot of moving parts to any peace deal – eg, the fact that there has been no mention of the sanctions that have been imposed on Russia since 2022.
The above being said, the oversold and undervalued EUR could continue to enjoy what could be described as a ‘peace dividend’. In particular, FX investors could start to position for a potential end to the hostilities in Ukraine that could usher in a period of relative economic calm, lower energy prices and a reconstruction boom in Ukraine that could prop up the economic outlook for the Eurozone. On the day, focus could also be on speeches by the ECB’s Piero Cipollone and Joachim Nagel. FX investors will continue to look for indications that the ECB has now pushed policy rates closer to the neutral levels that could suggest that the pace of cuts could slow down from here. Last but not least, weary FX investors would also keep an eye out for any tariff tape-bombs that could ignite intraday volatility once again.
My thoughts:
From a trader’s perspective, the EUR’s rebound on peace talks is a classic example of how markets front-run expectations rather than react to realized events. The Austrian insight that markets are driven by subjective value and entrepreneurial foresight is on full display here—investors aren’t waiting for a signed peace deal; they are already pricing in the possibility of lower geopolitical risk, improved economic stability, and a recalibration of capital flows.
The so-called “peace dividend” is less about fundamentals today and more about positioning. Traders who were short the EUR due to war-driven instability, high energy prices, and economic uncertainty are now forced to unwind, adding momentum to the recovery. This isn’t just about macroeconomic theory—it’s about flows, positioning, and sentiment. If peace negotiations gain traction, we could see further rotation into Euro-denominated assets, especially as risk appetite increases and capital starts rotating out of the safe-haven USD.
However, as any trader knows, headline-driven moves often have short shelf lives. The uncertainty surrounding sanctions remains a key risk factor. If peace talks accelerate but punitive trade restrictions on Russia stay in place, Europe will still be dealing with structural economic inefficiencies—constrained energy supplies, reduced industrial competitiveness, and an overleveraged monetary system. These factors could cap any sustained EUR rally.
Additionally, the ECB’s rate policy remains a wildcard. Austrian theory tells us that central banks distort price signals, and as a trader, you have to recognize that the ECB’s attempt to manage “neutral rates” is little more than guesswork. If the ECB slows rate cuts too much, the Euro could benefit from yield differentials, but at the cost of long-term economic stagnation. Conversely, a dovish pivot could crush the EUR rally just as quickly as it started.
Trades:
For short-term positioning, there’s an opportunity here—long EUR while peace optimism builds, but with tight risk management given the uncertainty.
If energy prices decline and risk sentiment shifts further, we could see additional upside.
But in true Austrian fashion, we must remain wary of government interventions—whether through sanctions, tariffs, or central bank missteps—that could turn this “peace dividend” into another temporary illusion of stability.
I am long EUFN 0.00%↑ and EUSC 0.00%↑, Euro area banks and small caps. Both will benefit from the secular trends of lower rates and what I believe will be appreciation of the EUR vs the USD this year.