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1 Nov 2013
Flash: Get ready to put on your EUR/USD bearish custom - TDS
FXstreet.com (Barcelona) - Positioning favours a further shakeout in Euros, notes Shaun Osborne, Chief FX Strategist at TDS.
Key Quotes
"We have remarked previously that the market has had a tendency to get too bearish on the EUR at the low end of what amounts to a broad trading range between 1.27/1.37 (we enter a guilty plea in this respect here) and too bullish at the top of the range in place over the past year."
The recent strength in the EUR has not been fully justified from a fundamental point of view. Even if the USD was beaten up because of the relative central bank balance sheet size/scale considerations (the Fed would be “QE-ing” for many more months while ECB policy would be relatively more restrictive), this week’s FOMC and Eurozone data will challenge those perceptions."
"Note that while short-term spreads have not tracked the spot rate especially well over the past few months, the retreat in core Eurozone spreads is driving short-term rate differentials back out to more obviously USD-supportive levels. Our estimate of EUR/USD ‘fair value’ based on the spread/spot regressions so far this year suggest a FV of 1.3150."
"We remain broadly bullish on the medium-term outlook for the USD (tapering sooner or later, more supportive spreads, better growth, unresolved Eurozone issues) so current levels provide an opportunity to buy the USD and sell the EUR."
Key Quotes
"We have remarked previously that the market has had a tendency to get too bearish on the EUR at the low end of what amounts to a broad trading range between 1.27/1.37 (we enter a guilty plea in this respect here) and too bullish at the top of the range in place over the past year."
The recent strength in the EUR has not been fully justified from a fundamental point of view. Even if the USD was beaten up because of the relative central bank balance sheet size/scale considerations (the Fed would be “QE-ing” for many more months while ECB policy would be relatively more restrictive), this week’s FOMC and Eurozone data will challenge those perceptions."
"Note that while short-term spreads have not tracked the spot rate especially well over the past few months, the retreat in core Eurozone spreads is driving short-term rate differentials back out to more obviously USD-supportive levels. Our estimate of EUR/USD ‘fair value’ based on the spread/spot regressions so far this year suggest a FV of 1.3150."
"We remain broadly bullish on the medium-term outlook for the USD (tapering sooner or later, more supportive spreads, better growth, unresolved Eurozone issues) so current levels provide an opportunity to buy the USD and sell the EUR."