After EUR/USD surged over 450 pips on the Draghi disappointment, what’s next?
The team at BNP Paribas examines:
Here is their view, courtesy of eFXnews:
Thursday’s squeeze higher in EURUSD and other EUR cross can be considered quite violent relative to history, with the only time over the past 10 years that EURUSD has rallied more than 3% being on the day being on the announcement of Fed QE purchases of Treasuries back in March 2009, notes BNP Paribas.
“We had expected to see EURUSD squeeze moderately higher following the ECB meeting and had been avoiding short exposure heading into the event. However, the extent of the move seems disproportionate both to the degree of disappointment delivered by the ECB and to positioning heading into the meeting. The theme of ECB and Fed policy divergence still remains very strong with the ECB having announced new measures on Thursday.
Meanwhile, our BNP Paribas FX Positioning Analysis indicates that while EURUSD was trading at its year lows, the market was holding only light short EUR positions with a score of only -4 out of +/-50,” BNPP argues.
“We therefore expect to see good interest to sell EUR into this latest move higher as we head into year-end, particularly if the Fed delivers a rate hike in December as we expect. Our 1.06 year-end target, which seemed perhaps too conservative just 24 hours ago, continues to look appropriate to us,” BNPP advises.
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