Investors’ concerns about Greece have taken a backseat and the risks of renewed disinflation or slowdown in the Eurozone, while growing of late, do not seem to represent an immediate risk.
EUR crosses should therefore remain at the mercy of drivers outside the single currency area. We expect policy divergence to become an even more important theme for the FX markets with the July NFP and the BOE trifecta potentially encouraging further frontloading of Fed and BoE rate-hike expectations.
In turn, this should keep the risks for EUR/USD and EUR/GBP on the downside in the near term.
Indeed, our short-term FX fair-value model for EUR/GBP is suggesting that the cross is looking overvalued at current levels.
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