EUR/USD is off the highs following the upbeat US GDP. What’s the trade moving forward? Here is the view from SocGen:
Here is their view, courtesy of eFXnews:
Societe Generale FX Strategy Research notes that the dollar’s trade-weighted index (TWI) continues to track real yields fairly faithfully, but right now that leaves the dollar in no man’s land.
In that context, SocGen notes that the improving correlation of the euro’s TWI with real German bond yields.
“It’s more usual to see the euro TWI track EUR/USD, which in turn is more affected by US yields than European ones, but as the latter get stuck in a range, Europe matters more. With strong economic data, fading political concerns and two weeks to go until the June ECB meeting, German real yields are on an uptrend,” SocGen adds.
“We worry that EUR/USD has run ahead of relative yields and has been supported by speculative adjusting from a big short to a net long position in a short period of time. That could see positions cut back quite quickly.
Still, that’s only another way of saying that EUR/USD is a medium-term buy and a short-term buy on a dip,” SocGen argues.
EUR/USD is trading circa 1.1180 as of writing.
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