Barclays Capital FX Strategy Research argues that the EUR bull case relies too heavily on three pillars that have ‘shaky foundations’.
“Expectations for EURUSD to break out of its range to the topside rely on a combination of some set of the following three arguments: 1) euro area political risks have receded, returning markets’ focus to economic fundamentals; 2) those fundamentals, continuous improvements and upside surprises in euro area economic indicators, have set the stage for a significant asset allocation shift to euro area equities; and 3) those factors also likely will lead to more rapid ECB policy normalisation,” Barclays notes.
“We see problems will all three arguments…We believe the EUR rally will quickly fade, reenforcing recent trading ranges and opening up tactical downside in EURUSD,” Barclays argues.
In line with this view, Barclays continues to expect EUR/USD to trade in a 1.06-1.12 range.
Source: Barclays Research
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