A segment from an overnight note by Société Générale, this on euro
In summary.
6-12 month horizon:
Given positions and valuation, it's easier to see EUR/USD at 1.20 than 1.05
But, in the one to three month horizon:
there are two clear downside risks
- a weaker yuan … A near-term break of USD/CNY 7 may be unlikely, but it would drag EUR/USD through the year's lows and could trigger stops.
- and a weaker pound … If sterling takes another significant knock, that too will hurt the euro.
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SG do say its difficult to gauge the probability of the Chinese authorities allowing USD/CNY to break higher, or of another sterling confidence crisi.
