EUR/USD has certainly recovered from the lows seen on Friday. It it already time for a rise?
This is the question Credit Agricole asks and provides a few good arguments for this.
Here is their view, courtesy of eFXnews:
While EUR/USD fell to a multi-year low last week on a further divergence in Fed-ECB monetary policy expectations, we see limited short-term downside from here.
Our reasons for this non-consensus view are thus. First, the ECB is unlikely to make a case for additional policy action anytime soon with President Draghi already stressing latest measures may prove sufficient to return inflation to target. Second, we perceive room for FOMC members speaking this week to dampen tightening expectations in the wake of last Friday’s payrolls.
Importantly, we note forward inflation expectations have fallen considerably in recent weeks despite improving growth thereby implicating the strengthening USD. Indeed Fed member Dudley already highlighted USD’s role in dampening inflation would be taken into consideration in achieving the FOMC’s two objectives.
As such caution is warranted and we advise against selling EUR/USD. To the contrary, shorter-term traders may take elevated speculative short positioning as a que to position for an upside correction to 1.28 in coming weeks.
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