EUR/USD correction driven by position adjustment – Rabobank

FXStreet Insights Team FXStreet

Since mid-September EUR/USD has corrected lower. In our view this move was determined by position adjustment, Rabobank's FX analyst Jane Foley reports.

EUR/USD slides to 1.16 as USD shorts unwind

"Not only has the market built up long Euro (EUR) positions this year, but speculators had become very short USDs. These shorts were built around anticipation that the Fed will cut rates aggressively into next year and also on concerns about whether the USD has lost its safe appeal."

"In our view, the sheer size of US capital markets, the global reach of the USD and the hard power of the US, mean that the greenback will remain a safe haven asset in the foreseeable future. That said, the USD continues to face headwinds, and the issue of Fed independence could undermine the greenback once Powell’s term as Fed chair ends next spring."

"In line with our view, short covering in favour of the USD led EUR/USD back to the 1.16 area this month. We see scope for choppy range trading around this level on a 1-to-3-month view and, given the clouds over growth in Europe, we see risk that a move to 1.20 could be delayed until the spring."

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FXStreet Insights Team

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