EUR/USD made a run for the hills and peaked at 1.1375 before settling just a bit lower. Nevertheless, it is still nearly 300 pips on the week.
Is the move exaggerated? Perhaps. The team at BTMU warns of a snap back after a position adjustment:
Here is their view, courtesy of eFXnews:
Another squeeze of euro short positons is currently underway triggered again by a sharp sell-off in the euro-zone government bond market, notes Bank of Tokyo Mitsubishi (BTMU).
“ECB President Draghi warned that investors should get used to periods of higher volatility at low interest rates triggering further positon liquidation. Higher volatility in the euro-zone bond market is keeping euro volatility more elevated as well. It is not yet clear that the ongoing positon adjustment is complete which could lift the euro further in the nearterm,” BTMU argues.
“The position squeeze has resulted in the US dollar weakening against the euro despite building evidence that the US economy is beginning to expand more solidly. The divergence is creating the risk of snap back US dollar strength once the near-term position adjustment is complete, especially if US data continues to point to a strengthening economy,” BTMU adds..
BTMU is neutral on EUR/USD at current level seeing the pair trading at 1.10-1.15 range in the near-term
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