Banks SocGen and Credit Agricole with two different thoughts for the euro

Credit Agricole is questioning whether we're at the end of the euro funded carry trade, while Socgen is detailing how we should be positioning after the "Road accident" in FX

CA note the sentiment change with investors thinking that the ECB may taper QE sooner than expected in the face of returning inflation and a recovery. They say investors are cutting short-EUR hedges to reduce Eurozone exposure. Euro swap rates coming off the lows pertains to less willingness to sell EUR forward. However, they doubt that this is the end of the carry trade;

"Is this the end of EUR-funded carry trades? We doubt it. We think it is premature to expect that the ECB will be adjusting QE anytime soon. Indeed, Eurozone inflation expectations have stabilised but remain close to the lows. In addition, Greece will remain a worry even as hopes for a deal between Athens and its creditors are growing ahead of the 11 May Eurogroup meeting.

In particular, we think that fears about Grexit could intensify again once Athens and its creditors start negotiating a third sovereign bailout later on this year."

They're not exactly screaming "carry on piling into shorts" but rather taking a more cautious tone

On the other side of the street Socgen a looking from the US side of the trade and say that EURUSD shorts is not the best dollar long play right now;

"The US economy has consistently failed to reach the growth rates that forecasters have been looking for, but there is enough momentum in both employment and real income to suggest yet another year of soggy growth is more likely than a downturn. But even 2½% GDP growth would point to further policy divergence, supporting the dollar.

Short EUR/USD is no longer the best way to trade the upside in the dollar, but long USD/JPY will pay dividends again in due course and tactically, these are attractive levels to short GBP/USD a week before the UK election"

Both banks recently kept their Jun, Sep and Dec forecasts unchanged in April. Both lowered them in March

Current forecasts are;

Credit Agricole - 1.04, 1.01, 1.00

SocGen - 1.07, 1.03, 1.03

These notes highlight the sentiment change I've been speaking about over this week. While the fundamentals may not be telling the story a market mood shift can be a very powerful thing. Where we'll see if the mood is really changing is in the upcoming CFTC reports

Efxnews.com provides the details and you can check them out here