Analysts at Nomura explained that the euro has moved a long way (nearly 6% since our entry), and they feel it is prudent to tactically book profits.
"Expectations for the ECB have swung from low expectations of tightening to tapering and possibly two rate hikes by the end of next year. The clear breach of 0.5% in German 10yr yields is another sign of how far markets have moved to re-price the euro area.
On the dollar side, expectations for the Fed haven’t moved as much, with a December hike not even fully priced yet. In addition, euro area data have consistently surprised to the upside whether on growth or inflation compared with the US, and positive surprises are unlikely to be sustained.
We maintain our structural bullish view on the EUR/USD and see a possible test of 1.20 later this year. Dollar valuations, a growing US current account deficit, a weak dollar policy and the rest of the world catching up with Fed tightening should all weigh on the dollar and support the euro.
But for now we look for a pause in EUR/USD strength, or even a correction. When markets start to under-price the positive euro area macro story relative to the US, we would consider re-entering a long EUR/USD position taking profit on long EUR/USD."