Michael Sneyd at BNP Paribas tells us why staying long on the euro-dollar is his preferred strategy:
Negative US real rates suggest the USD may soften and the eurozone’s current account surplus may not be recycled.
EURUSD’s overvaluation relative to its STEER™ has corrected this week, suggesting EURUSD’s uptrend should now resume.
We enter a long EURUSD trade recommendation at 1.1290 targeting our end-Q2 forecast of 1.1600.
We place the stop-loss at 1.1140, slightly below the 24 March low of 1.1144.
In EURUSD, our forecast for 1.14 is on target, aiming for 1.16 in Q2 we detailed our expectations for EURUSD to continue to rise by mid-year.
We view that the Fed’s increasingly dovish stance and focus on the downside risks to the US economy will keep the USD soft over the months ahead.
Meanwhile, our CLEER™ based scenario analysis highlighted the upward pressure that may be exerted on the EUR from less current account recycling as a result eurozone fixed income investors moving less funds abroad as a result of lower US yields and relatively high issuance of eurozone government bonds in May and June.
- We enter a long EURUSD trade recommendation at 1.1290, targeting a rise to 1.1600.
- We place the stop-loss at 1.1140.