Societe Generale FX Strategy Research’s first reaction following yesterday’s victory of Emmanuel Macron in the French Presidential election was that EUR would likely see a wave of profit-taking on long positions.
Today, SocGen follows on the EUR reaction noticing that the single currency faces two short-term challenges.
“The first is that the FX market has moved a good way further in recent days than the bond market, with the Treasury/Yield spread not very different from where it was when EUR/USSD was under 1.08. Bunds need to catch up with the currency. The second hurdle is positioning. CFTC data show the smallest speculative Euro short in 3 years. That’s still a short position, of course, so much more of a short-term hurdle than a reason for a deep correction to lighten positions.
As such, SocGen expects a period of EUR choppy trading for now, but still expects EUR/USD to move higher in due course.
Strategy-wise, SocGen still likes long EUR/JPY positions to EUR/USD and EUR/GBP at this stage.
EUR/JPY is trading circa 123.80 as of writing.
Source: Societe Generale Cross Asset Research
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