EUR/USD: 3 Reasons To Sell Near-Term
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EUR/USD reached a temporary peak on 3 May above 1.16 but has since moved lower. We believe the risks are to the downside near term.
Firstly, positioning is now much cleaner than earlier in the year.
Secondly, we believe that the market is too negative about the US economy.
Thirdly, we believe that Brexit risks will weigh on EUR/USD up to the referendum on 23 June.
We see a lower EUR/USD as an asymmetric Brexit view as a 'remain' vote would open the door for a Fed September hike.
Brexit risk premia have been reduced over the past month while correlation with EUR/USD has been low. In the event of a Brexit (not our base case), EUR/USD is likely to be dragged down short term by the political and economic uncertainty this would generate and that the ECB would most certainly need to ease in this case.
We target EUR/USD to fall to 1.09 over 3M in case of a Brexit. − The ECB would be likely to use QE rather than rates, which would dampen the EUR negative impact, in our view
Longer term, EUR/USD will head higher on valuations (our 12M forecast is 1.18) but near term we recommend to be positioned for a lower EUR/USD.
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