The single currency continued to correct higher for most of last week. It appears that further stabilising inflation expectations have been reducing expectations of the ECB turning more aggressive anytime soon. As such investors’ interest in using the EUR as a carry funding currency decreased too, what is well reflected in the currency’s negative correlation with equities.
Although still elevated speculative short positioning may make a case of a further correction higher, we believe that EUR levels above 1.14-1.15 should act as attractive sell territory.
This is especially true as a further appreciating currency is unlikely welcomed by the ECB given its dampening impact on inflation expectations.
In terms of data this week’s focus turns to PMI and the German IFO survey releases. Any indication of weakening manufacturing sector-related business activity may support the view that the EUR reached unsustainable levels.
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