Euro at 1.14: Value Trap or Base-Building?
EUR/USD closed the week at 1.1404, and the valuation crowd is getting loud. On purchasing-power parity, the euro is historically cheap. On fair-value models, it’s 8–10% undervalued. So is 1.14 a generational buying opportunity?
Maybe. But let’s be honest about what valuation does and doesn’t do.
Valuation is a compass, not a clock
Undervalued currencies can stay undervalued for years — the euro spent most of 2015–2017 “cheap” and kept falling anyway, because rates and flows trumped value. Valuation tells you where the pair eventually goes; it tells you nothing about when. Traders who fade trends on valuation alone rarely survive to collect.
The current undervaluation also has a structural explanation that isn’t going away: Europe’s growth model isn’t producing inflation or productivity, and until that changes, “fair value” keeps drifting lower. Cheap can get cheaper.
What would make me a buyer
Not a price — a trigger. A European data surprise strong enough to shift ECB expectations. A US employment report weak enough to restart Fed cut pricing. Or technically, a weekly close above 1.1470, which would break the June downtrend and put 1.1550 in play. Any of those three, and the euro becomes a trade rather than a thesis.
What would make me a seller
A break of 1.1379 — last week’s low. That reopens 1.1325, and below that, the conversation shifts to 1.1200 and then the pandemic-era lows. At that point, valuation arguments become even more interesting and even less tradeable.
Bottom line: respect the discount, respect the trend more. The trend is still down until the triggers say otherwise.
Disclaimer: This is market commentary, not investment advice. FX trading carries substantial risk of loss.
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