The firm says that EUR/USD is below its short-term fair value of 1.1250
Strategists at the firm says that further decline in EUR/USD could lose pace as the pair sits below its short-term value of 1.1250. They argue that based on current levels of the euro's drivers, such as rate spreads and stock market performance, the fair value of the single currency could stand higher.
Adding that "we believe that FX spot may have overshot its short-term fair value on the downside and this may limit the scope for a sustained selloff in the absence of further deterioration in the currency pair's relative fundamentals".
I'm sure their regression/statistical models have a solid justification for arguing a case of 1.1250 being "fair value" but given other fundamental backdrops, I would find it tough for the euro to rally all too much under current circumstances.
Here are some other reasons to consider:
1. US-China trade war continues to rage on and will hurt European economies further
2. ECB is nowhere near convinced of a 2H 2019 growth recovery, no bullish factor here
3. Political uncertainty from Italy is a wildcard risk to consider
4. Economic data hasn't been too suggestive of an imminent rebound
And for me, the inflation figures from France (yesterday) and Spain (today) for the month of May is something that markets should keep an eye out on ahead of the Eurozone inflation data next Tuesday and the ECB meeting next Thursday.
After a significant bump in April due to Easter seasonality, inflationary pressures have come off strongly in May based on initial estimates and that is a big red flag as it will throw a spanner into the ECB's economic outlook and forward guidance.
That said, as long as price does not eclipse the trendline channel resistance seen in the chart above and the 100-day MA (red line), sellers will still remain in control so there's not much to discredit CA's 1.1250 estimate in my view.
