Scope for short covering in EUR/USD - SocGen

Author: Adam Button | Category: News

What's next for the euro

Societe Generale Research discusses EUR/USD outlook, and still sees a scope for limited near-term gains on short-covering. 

"The euro is cheap for good reason (little growth, negative rates) and the dollar is expensive for equally good reason (higher rates and more growth). While the G2 currencies are locked in place, central bankers are making sure that a repeat of 2008 is delayed and supporting global asset prices more than global growth. That's going to end (badly) in due course but for now, using negative-rate currencies to fund longs in (slightly) higher-yielding ones continues to pay dividends," SocGen notes. 

"The planet is long USD. The FX market is now long the US dollar across the board, and dormant volatility makes the space seem threateningly quiet. Speculators have amassed their biggest EUR shorts since 2016, suggesting imminent short covering, but leading to a bounce of only limited amplitude. AUD and CHF have reached more structural short levels, but positions are more stable. The timing of a positioning-driven bounce is thus more challenging to establish, but it should be more meaningful when it happens," SocGen adds.

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