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4 Feb 2015
EUR/USD slide may resume after some choppy trade – TDS
FXStreet (Barcelona) - Shaun Osborne, Chief FX Strategist at TD Securities, expects EUR/USD slide to continue after some choppy trading as the market works off the oversold conditions, forecasting the pair to end the year by dipping below par.
Key Quotes
“The extended rally in the USD has hit a bit of a bump in the past week. That is perhaps not too surprising in one sense.”
“We noted last Monday that market positioning—specifically in EURUSD—and the extent of the USD rally over the past three months (double digit percent gains) strongly suggested that a stabilization in the USD bull trend, or even a reversal, could unfold. It is the pace of the USD drop this week—and the broader USD sell-off combined with a bounce in crude oil prices—that has surprised the market and left investors a little unsure about where we go from here.”
“Arguably, the EUR has looked undervalued versus the USD over the past few weeks on the basis of nominal interest rate spreads and relative equity market performances.”
“But such fundamental concerns are, we think, overshadowed by the pending ramp up in the ECB balance sheet which we expect to be EUR-negative in the medium-to-longer term (we forecast EURUSD dipping below par by year end).”
“EUR weakness has reflected investor positioning away from low yielding EUR-denominated assets to higher returning ones—ironically that could mean JGBs now for anyone who has been invested in Bunds—and this is a process that is likely to be ongoing.“
“We are not convinced that the EURUSD slide is complete but we do think the next few weeks may remain choppy as the market works off the oversold condition that has developed.”
Key Quotes
“The extended rally in the USD has hit a bit of a bump in the past week. That is perhaps not too surprising in one sense.”
“We noted last Monday that market positioning—specifically in EURUSD—and the extent of the USD rally over the past three months (double digit percent gains) strongly suggested that a stabilization in the USD bull trend, or even a reversal, could unfold. It is the pace of the USD drop this week—and the broader USD sell-off combined with a bounce in crude oil prices—that has surprised the market and left investors a little unsure about where we go from here.”
“Arguably, the EUR has looked undervalued versus the USD over the past few weeks on the basis of nominal interest rate spreads and relative equity market performances.”
“But such fundamental concerns are, we think, overshadowed by the pending ramp up in the ECB balance sheet which we expect to be EUR-negative in the medium-to-longer term (we forecast EURUSD dipping below par by year end).”
“EUR weakness has reflected investor positioning away from low yielding EUR-denominated assets to higher returning ones—ironically that could mean JGBs now for anyone who has been invested in Bunds—and this is a process that is likely to be ongoing.“
“We are not convinced that the EURUSD slide is complete but we do think the next few weeks may remain choppy as the market works off the oversold condition that has developed.”