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EUR/USD is moving up and up, and we listed 5 reasons for that. Is the move overstretched? The team at SEB thinks so:

Here is their view, courtesy of eFXnews:

SEB FX Strategy Research notes that  there are emerging signs that  EUR/USD is likely trading near its peak with a move beyond 1.20 seems not on the cards in the near-term.  

Firstly,  the STFV-model indicates a substantial stretch in EUR/USD as it trades more than 3 standard deviations away from its short-term fair value of 1.1470 (Aug 1). Usually this is unsustainable.

Secondly,  the move higher in EUR/USD is not at all reflected in the relative 2year yield differential between the US and the euro area. Usually such “gaps” between the exchange rate and relative 2-year rates are eventually closed and usually (experience suggests) by changes in the exchange rate rather than fluctuations in relative rates.

Thirdly, positioning has moved against the USD for quite some time now as investors have either reduced most net short positions or increased net long positions against the dollar.

Finally,  We doubt that ECB  will remain quite so tolerant if EUR/USD continues to move higher. Probably the threshold or trigger lies around 1.20, which is the upper bound of the 1.10-1.20 range our models suggest for the long-term fair value of EUR/USD,” SEB argues.

“Provided our present forecasts concerning the Fed remain intact, EUR/USD should likely be near its peak….Given current positioning, rate differentials and the ECB’s position, a EUR/USD move much beyond 1.20 seems unlikely,” SEB adds.

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