BNP Paribas analysts remain short euro in their model portfolio with a target of 1.25:

“We think the USD is only in the early stages of a long-term uptrend, despite its sizeable gains in the past two months. As the Fed took another step in a hawkish direction this week, both nominal and real rate differentials are now telling a similar story of monetary policy divergence between the Fed and other major central banks (except the Bank of England). Given that the USD has recoupled with yield spreads this suggests that ongoing strength in the US economy should translate into a further dollar gains as long positioning is not overly crowded in our view.

There is little reason to turn less pessimistic on the EUR and JPY. A tepid take up at the ECB’s first TLTRO is unlikely to offer any lasting support to the EUR since it means the ECB might need to rely more heavily on asset purchases to reach its balance sheet goal. Eurozone PMIs on Tuesday (23 September) and Germany’s Ifo survey on Wednesday (24 September) should continue to paint a subdued economic picture.

In the week ahead we also focus on the August durable goods orders report on Thursday (25 September) and remain short EURUSD.”

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