Two weeks ago, Credit Agricole said to buy the euro at about 1.2660, the trade had a very good start and climbed as high as 1.2889 in the first week but failed to hit the 1.3050 target (lowered from 1.31). Last week, the trade fell into the red in the slide to 1.2615. They have a stop at 1.2350.

We expect the EUR to remain a buy on dips until the end of the year, in particular against the USD.

This is due to further stabilising ECB rate expectations and as there is room for an improving risk-asset-related capital flow situation. ECB Governing Council member Weidmann stressed last week that more time is needed to evaluate the latest policy measures’ impact on the economy.

This in turn suggests there is little scope of them turning more aggressive any time soon. This is especially true as improving business activity, as indicated by the latest PMI releases, may provide a first indication of price developments stabilising.

From that angle investors’ focus will turn to this week’s October CPI release, which we expect to confirm the above outlined notion. It must be noted too that improving growth expectations may support foreign investors’ demand for EUR-denominated risk assets anew.

As a result of the above-outlined conditions we stay long EUR/USD targeting a move towards 1.3050 by the end of the year.

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