We advise against buying the EUR around the current levels.
With speculative short positioning now less elevated, the currency should become more sensitive to monetary policy prospects. Weak commodity price developments and still muted growth momentum should have increased downside risks to inflation for the Eurozone as a whole. This is especially true as medium-term inflation expectations, as measured by 5y inflation swaps have fallen back to multi-month lows.
Considering that the EUR itself is regarded as an important driver of inflation expectations, the currency’s resilience over the past few weeks is unlikely to be welcomed by the ECB.
In terms of data, next week’s focus will be on the German IFO business climate survey, which should confirm capped growth expectations. This is especially true as external demand expectations related to China should have become more muted.
As a result, we remain in favour of selling EUR rallies, for instance against the USD, which should benefit from the increasing likelihood of the Fed considering higher rates in September.
This content has been provided under specific arrangement with eFXnews.
Recommended Content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.