A thoughtful piece from Credit Agricole overnight on the euro
In brief, CA cite:
Italy:
- Even though overall sentiment is likely to remain fragile, it appears unlikely that sentiment, with respect to Italy, will weaken further in a manner that may trigger a further increase in EUR selling interest.
Positioning:
- Indeed, elevated speculative-short positioning indicates that many negatives are already in the price. According to our FX Positioning gauge, speculative-oriented investors continue to run EUR short positions close to multi-quarter extremes.
On the ECB:
- Elsewhere, we expect central-bank monetary-policy expectations to prove to be a more sustainable driver of the EUR. As stated by a number of ECB members, including Villeroy, fiscal policies will not sway the ECB's policy outlook.
CA conclude with a trade recommendation to buy EUR/USD. Their nominated entry point is under water as I post, but if you like their reasoning you have an opportunity for better entry thanks to the overnight slide and Powell's comments late NY time (headlines, and more). Stop and target:
- stop-loss of 1.1325
- target at 1.1950
