Credit Suisse remain suspicious of EUR/USD capacity to sustain a rally despite the sharp decline in US rates.
“We suspect the ECB will continue to jawbone it lower whenever it pushes beyond the EURUSD 1.15 level as there are enough disinflationary forces still in evidence in the euro area to make this a sensible policy,” CS argues.
“Looking at the Volkswagen crisis for example, there is talk both of sharp cuts to investment and auto price wars that could shave a further 0.1% off euro area HICP. The macro data flow is not up-to-date enough to show these potential developments,” CS adds.
“With the market inclined to believe the idea that the ECB can and will do more easing if necessary, and with the 22 October ECB meeting on the horizon, long EUR still seems a risky trade,” CS warns.
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