We remain of the view that elevated speculative short positioning and further stabilizing monetary policy expectations will lead to a further correction higher in EUR/USD. Weaker than expected US retail sales should come to the detriment of both, inflation and growth expectations.
This in turn should make a case of Fed members trying to dampen investors’ Fed rate expectations further. This stands in contrast to the ECB, which is unlikely communicating a more aggressive monetary policy stance anytime soon as more time is needed in order to evaluate the latest policy measures’ impact on the economy
Stabilising monetary policy expectations should increase position squaring-related EUR upside risk, especially when we consider that positioning remains close to elevated territory.
As the Fed appears to become more cautious regarding a stronger USD’s impact on growth and inflation, EUR/USD may be among the main beneficiaries in the weeks to come.
As a result to the above outlined conditions we remain long EUR/USD as a tactical trade recommendation, targeting a move above 1.30 over the next few weeks.
*CA went long EUR/USD last Friday at 1.2660 with a target at 1.31 and a stop of 1.2350.
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