What’s the trade in the euro
Societe Generale Research discusses EUR/USD outlook and stays sidelined in the near-term.
“EUR/USD remains firmly in the bottom half of the last 5 years’ range, but the trade-weighted euro is only about 1% lower than it was 5 years ago, when the ECB was ramping up its policies to weaken the currency and hadn’t yet unveiled January 29015’s bazooka. The EUR/CNY rate (the bilateral rate with the biggest single share in the basket) is higher than it was 5 years ago. That higher EUR/CNY rate significantly limits the potential upside for EUR/USD, unless we see USD/CNY fall back. The last week hasn’t seen the euro able to break through its 200-day average, or any other technical/psychological barrier, but the fall back in USD/CNY does provide support on the downside for the euro,” SocGen notes.
“However, if a US/Chinese trade deal results in a narrower trading range for USD/CNY, it will also limit the possible range for EUR/USD going forwards. In the meantime, EUR/USD is a buy if it can break 1.12, and a sell if the US/Chinese trade talks break down,” SocGen adds.