EUR: Scope For Recovery Post-ECB; GBP: Room For Further Squeeze - BNPP
Feedback loops continue to operate in financial markets, with equity and commodity prices remaining subdued after the rise in US rates earlier this week, notes BNP Paribas.
"The US 2-year Treasury yield is holding below 90bp and the USD has continued to gain vs. commodity exporter currencies while weakening against the yen. The USD continues to hold up better vs. the EUR in anticipation of further easing from the ECB on Thursday, but we see scope for EURUSD to recover in the aftermath of the meeting.
The US calendar remains quiet for the balance of the week and, with the Fed calendar now quiet in the run up to next week’s FOMC meeting, USD direction is likely to remain very much at the mercy of fluctuations in the risk environment," BNPP argues.
Turning to GBP, BNPP notes that the UK industrial and manufacturing production grew by more than expected in January, in contrast to recent weakening in the manufacturing PMI.
"EURGBP is beginning to break lower, testing the 0.7700 level and we think there is considerable room for a further squeeze of GBP shorts, with BNP Paribas FX Positioning Analysis signalling the market continues to hold its shortest GBP exposure since 2008," BNPP projects.
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