EUR/USD: What Real Rate Differentials Say? - BNPP

EUR/USD: What Real Rate Differentials Say? - BNPP

6 April 2016, 18:15
Vasilii Apostolidi

German industrial production fell by 0.5% m/m in February, better than expectations for a 1.8% fall after the very strong January print. The January reading itself was revised down by 1pp to 2.3% m/m. Overall we see eurozone economy growing by a fairly solid 0.4% q/q in Q1, but this is likely to be followed by softer GDP growth of 0.2% q/q in Q2.

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With EUR nominal front end rates probably reaching the lower bound already and the ECB struggling to revive inflation expectations real rate differentials are skewed in EURUSD’s favour especially as US real rates have fallen significantly.

This leaves us moderately bullish on EURUSD with a 1.16 target in Q2 while we also maintain long EURJPY and EURAUD trade recommendations via options.

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