ArticleBody Analysis from BNP Paribas on EUR/USD:
"Navigating the currency (FX) market is difficult due to the cross-currents from the bond markets, where the selling pressure on the back end persists. With USD longs now much more moderate, pressure to unwind positioning appears to be subsiding, but the dollar is still lacking a catalyst for a move higher. The Fed has been keen to stress its data dependency in recent communications; and we expect the FOMC minutes, out on 20 May, to remain non-committal on the timing of lift-off.
A potential positive for the USD would be some lessening of concerns over FX and inflation expectations, but ultimately the dollar will need stronger data to rally.
The week ahead is relatively light on data until the CPI report next Friday. We believe it's premature to jump back into USD longs via spot although we do maintain long USDCHF and USDJPY exposure via longer-dated options.
In the Eurozone, data releases are also skewed towards the end of the week, with May PMIs and Ifo business confidence due out. We think the recent run higher in European yields and the EUR had more to do with a temporary bond supply shift and market positioning than strong economic data.
In fact, we suspect the uptick in yields will keep the ECB focused on QE, implying that the EUR is still an attractive funder."
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