Euro and Swedish krona might benefit despite limited euro-zone data and muted European Central Bank communication. EUR/USD could rise to 1.16 and potentially up to 1.1750 if concerns over Federal Reserve political risk subside, though issues surrounding Greenland continue to impact the outlook.
The Swiss Franc has emerged as the top-performing G10 currency, serving as a hedge against Federal Reserve independence risk. Projections for 2025 suggest the euro and Swedish krona could also benefit. Markets are in a cautious stance, awaiting clarity on implications of Federal Reserve subpoenas.
The major risk for European currencies is the potential US annexation of Greenland. Central bank FX intervention could affect liquidity. Unusual activity in Danish krone forwards indicates ongoing hedging or speculation.
Limited domestic data is expected for the euro this week, with few European Central Bank speakers scheduled. Markets have shown little inclination to adjust ECB pricing. If Federal Reserve risk reduces, EUR/USD could reach 1.1600, though reassurance is needed. A bullish target of 1.170-1.1750 is anticipated for the near term.
Based on market movements we saw in 2025, the euro and Swedish krona are positioned to be major beneficiaries if concerns around the Fed’s independence continue to fade. The Fed Policy Uncertainty Index has already dropped 15% in early January, a sign that markets are pricing out the worst-case scenarios from last year’s subpoenas. This backdrop supports a potential move for EUR/USD toward the 1.1600 level in the near term.
The primary risk for any bullish European currency positions remains the US threat over Greenland, which is keeping geopolitical risk premiums elevated. We are seeing this reflected in unusual moves in Danish krone forwards, where 3-month hedging costs have spiked to levels not seen since the 2015 European currency turmoil. Recent satellite imagery confirming US naval deployments in the North Atlantic suggests traders should take this frontier risk seriously.
With little data coming from the Eurozone this week and a quiet European Central Bank, the focus remains on external drivers. We feel that traders could consider purchasing near-term EUR/USD call options to capitalize on a potential easing of Fed tensions. A move toward our 1.1700-1.1750 target offers significant upside, especially if the market gets the reassurance it needs from Washington.
The Swiss franc has again proven its role as the preferred hedge against both political and geopolitical turmoil, outperforming all G10 peers so far this month. Just as we saw during the European sovereign debt crisis over a decade ago, capital flows into the CHF during times of regional stress. Derivative traders holding bullish euro positions should consider using CHF call options as a direct hedge against any escalation in Greenland.
