EUR/USD: Positioning is the biggest near-term headwind – Credit Suisse
|The Credit Suisse analyst team pre-election EUR/USD 1.16 target reflects their sense that more position clearing can take place ahead of US elections. They see room for a move above 1.20 only after the elections, assuming global growth is sustained and pro-cyclical currencies benefit.
Key quotes
“Since the ‘Franco-German Agreement’ of mid-May catalysed the concept of meaningful debt mutualisation for the European Recovery Fund, the market has suppressed periphery vs core bond spreads and taken a more constructive view on EUR. But with the ECB pushing back verbally against rising EUR valuation, and Europe seeing a new COVID-19 wave with lockdown risks amid softening growth, extended long positioning opens the door for a test of the EUR/USD 1.1600 level in coming weeks.”
“In 2017, a positive market reaction to Dutch and French election results helped buoy EUR/USD to 1.25 by Jan 2018. This move was well tolerated by FX markets until levels above 1.20 appeared to put a cap on euro area 5y5y inflation expectations. We suspect a similar dynamic may be playing out now, but the ECB has jumped the gun this time around by already pointing out the potential disinflation risks associated with EUR strength. This should cap strength beyond EUR/USD 1.20 before the 3 Nov US elections.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.