According to Richard Franulovich, Research Analyst at Westpac, EUR/USD is unlikely to be a forefront beneficiary of any short term USD weakness and suggests that EUR/USD remains overvalued which is likely to check upside potential.
Key Quotes
“In any case the Fed will likely deliver more hikes than currently priced in for 2019 (about +25bp), ensuring EUR/USD equilibrium continues to decline.”
“We estimate that short term EUR/USD equilibrium (based on short and long term core Eurozone-US govt bond spreads, Eurozone peripheral sovereign spreads and Brent crude) is 1.0725, leaving EUR/USD a good 5.7% above fair value.”
“Going forward; Italy’s leaders have shown signs of softening their hardline stance on budget widening. That could see sovereign spreads narrow and boost EUR/USD fair value slightly.”
“With EUR/USD still overvalued and pressure on its equilibrium level from yield spreads likely to be maintained it’s not clear EUR/USD can muster sustained strength.”
Share
