Credit Agricole CIB FX Strategy Research argues that further EUR appreciation from current levels will be faced with caution.
This is especially true should growth expectations fail to improve further in order to compensate for a stronger currency’s dampening impact on price expectations. However, as of now medium-term inflation expectations as measured by 5Y inflation swaps have been well supported.
In such an environment, CACIB notes that speculative positioning may play a larger role in driving the single currency in the short-term.
“With speculative oriented investors still running a sizeable long position, some short-term downside risks cannot be excluded,” CACIB adds.
However, CACIB remains structurally constructive on the EUR and therefore believe EUR dips may well prove a long-term buy.
Source: Credit Agricole CIB Research
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