German political drama won't be a major story
Credit Agricole CIB FX Strategy Research discusses the EUR outlook in light of the recent political developments in Germany.
"The EUR has started the week on a weak footing, mainly on the back of increased political uncertainty after German coalition talks officially broke down. Most importantly, we consider this development is unlikely to trigger a material change in the handling of EU affairs. The same holds true when it comes to domestic conditions.
This implies then that other factors such as Eurozone growth prospects will predominantly drive the single currency. It must also be noted that speculative-oriented investors have been squaring EUR longs for most of the past few weeks already. According to our FX positioning gauge, the current degree of long positioning is well below its medium-term average. Hence, we see low risk of further corrective downside from these levels," CACIB argues.
Therefore, CACIB stays in favor of buying EUR dips, and staying long the EUR against the CHF and the USD.
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