Euro/dollar is weakening after hitting the highs ahead of the NFP (see how to trade it). Is this a correction within the correction?
The team at BNP Paribas explain the current climate and what positions could be taken:
Here is their view, courtesy of eFXnews:
BNP Paribas’ initial efforts to fade the Q2 rally in EUR/USD have played out badly, with its short trade from early this week stopped out at 1.1390. Today, BNPP is out with its weekly note stating that as FX price action becoming increasingly choppy and subject to cross currents, they have respected that and moved to the side lines for now.
The following are some of the key points in BNPP’s note along with its potential strategy to play EUR/USD over the coming weeks.
EUR/USD: respecting the price action.
“We recommended a short EURUSD position with a view to improving US Q2 data, but we respect the price action and will now wait until the dust settles. In the wake of the extreme market moves in both global fixed income and equity markets, EURUSD is still vulnerable to trade higher. Still, EURUSD strength is unlikely to be sustained particularly if our forecast for stronger Q2 data proves correct,” BNPP argues.
…Into NFP
“We expect a strong reading on Friday’s US employment report, which should fuel appetite to rebuild dollar longs. April nonfarm payrolls is important while our economists’ call for a headline increase of 275K should prove USD bullish,” BNPP projects.
ECB QE back to the forefront
“The sell-off in European equities will likely continue to coincide in an inverse fashion with EURUSD, and the price action has certainly reflected this. Ultimately, the ECB’s quantitative easing policy will anchor interest rates in the eurozone, which will see the eurozone’s yield ‘disadvantage’ resume in earnest,” BNPP adds.
EUR/USD Strategy: Waiting is a virtue
“We continue to think risk-reward for new EURUSD shorts is increasingly attractive for new shorts as we approach pre-QE levels near 1.15 and we will look for opportunities to re-enter this position as market conditions become more settled,” BNPP advises.
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