EUR/USD: Higher L-Term But Ripe For A Setback N-Term On Change In Unhedged Flows – Nordea

EUR/USD finally made a breakthrough[1] and holds onto higher ground. What’s next?

Here is their view, courtesy of eFXnews:

Nordea FX Strategy argues that while the longer-term direction for EUR/USD is higher, the pair is ripe for a setback in the near-term.

“Everyone is already long European equities, seasonality for Bund yields is negative for July (yields typically drop 14bp), while US data will improve. There are also signs unhedged equity inflows are moderating.

These unhedged investors are still well in the money, not due to European equities which have actually weakened since mid-May, but due to currency effects (higher EUR/USD). If European equities continue to weaken, these market participants might need to reassess their FX hedge ratios which might add selling pressure on EUR/USD later this summer,” Nordea says as a rationale behind this argument.

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