TD Research argues that a shift from divergence (a US driven dynamic) to convergence relies on a mix of little to no employment gap suggesting a tight labor market) and little to no inflation gap..
As such, TD notes that given the recent price action in the EUR it is important to keep mind that the EZ has yet to see an acceleration in core inflation
“Sill, the EZ NEER has risen 5% since April and is like to inject some caution around the inflation outlook, especially as oil prices remain weak,” TD adds.
“This keeps us bullish EUR on major crosses but looking to fade rallies to 1.15 for now,” TD advises.
Source: TD Securities Research
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