Credit Agricole views EUR/USD as expensive relative to its estimated short-term fair value. The bank also notes that the euro is the most overbought currency in G10 FX, according to its positioning data. Additionally, the EUR nominal effective exchange rate (NEER) that the European Central Bank (ECB) uses to measure FX strength has recently reached an all-time high.
Key Points
EUR/USD considered expensive: Credit Agricole sees the EUR/USD as relatively expensive compared to its estimated short-term fair value of 1.0957, a figure derived from FX drivers like rate differentials and peripheral spreads to bunds.
Possible overvaluation with further upside: The recent EUR/USD rebound has brought it in line with its long-term fair value, as estimated based on factors such as real rate and yield spread, relative productivity, external position, and commodity terms of trade. The bank suggests that any further rise in EUR/USD could lead to overvaluation.
Overbought EUR: According to the bank's positioning data, the Euro is the most overbought currency in G10 FX.
EUR NEER at all-time high: The Euro's nominal effective exchange rate (NEER), used by the ECB to measure FX strength, has recently hit an all-time high, underlining the economic impact of the recent Euro rally.
Summary
Credit Agricole asserts that the EUR/USD pair is expensive in relation to its estimated short-term fair value. The recent EUR/USD rebound aligns it with its long-term fair value, which indicates possible overvaluation if the currency pair continues to rise. The bank's data shows the Euro as the most overbought currency in G10 FX, and the recent Euro rally has driven the Euro's nominal effective exchange rate (NEER) to a record high.
For bank trade ideas, check out eFX Plus. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. Get it here.
