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EUR/USD had a strong run all the way to 1.11616 but it fell back and seems to seek a new direction. What’s next? Here are views from two banks:

Here is their view, courtesy of eFXnews:

Current Period Of EUR Strength Could Run For A While Longer – ANZ

Last week Q1 euro area growth rose 0.6% q/q, up from 0.3% q/q in Q4, beating market expectations of a 0.4% q/q increase.Although there is no breakdown of the data available as yet, the release suggests that the ECB unconventional monetary stimulus – and the lagged effects of prior policy easing – may finally be having a positive impact on the pace of activity. Coupled with the modest and ongoing improvement in the labour market, as well as the slowly improving credit cycle, growth dynamics for the euro area appear to be improving.

….Nevertheless, whilst the euro area’s growth profile has improved, it is at least partially the result of exceptionally loose monetary conditions. Owing to excess capacity, low inflation, high unemployment and evidence of secondary disinflationary effects, the ECB cannot accommodate a sustained tightening in monetary conditions. But for now, the EUR has found some popularity.

Against the backdrop of the UK’s referendum on EU membership, the recent cut in interest rates from the RBA and expectations that the RBA and RBNZ may cut rates again, the current period of EUR strength may run for a while longer.

EUR/USD Started To Look Stretched: Where To Target? – BNPP

We believe USD positioning is getting increasingly short (-19 on our scale of -50 to +50) and more importantly, US front-end yields have finally adjusted to levels where risks are more skewed to the upside. US 2-year yields have fallen from 110 bps at the start of 2016 to 75 bps now. These levels are now consistent with our Rates Strategists’ year end targets.

STEER signals stretched rally in EURUSD May 2016

Our STEER model now suggests EURUSD is rich to key drivers with the model signals fair value at 1.1346  (see chart). STEER has proven to be a reliable indicator of short-term EURUSD movements this year.

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