According to analysts from TD Securities, the EUR/USD pair has proved resilient in recent weeks, but they think this is coming to an end. They consider the recent rally to levels near 1.10 as an opportunity for short positions.
“We think the combination of slowing growth, political tensions, and shifting capital flows adds up to a negative outlook on the EUR – particularly against the USD. Add to this backdrop the EUR’s negative carry vs the USD, and we think the euro fits the bill as a funding vehicle of choice.”
“EURUSD squeezed higher in the wake of Thursday’s ECB policy decision. Spot managed to push above the 1.0890 pivot, a level that had capped rallies in recent days. We do not, however, think that event is the catalyst for the move. Instead, we think flows related to month-end portfolio rebalancing are the main culprit. As such, we think this move can quickly reverse.”
“The pop higher has not yet seriously threatened to break above key resistance around 1.10. In line with this, we think the latest move higher represents a good entry point to initiate EURUSD shorts. With the balance of risks now favoring a move lower, in our view, we are adding this position to our Model Portfolio.”
“We enter a EURUSD short at 1.0950, targeting a move down to test the March 2017 lows at 1.0495. We place our stop-loss at 1.1185. Given the uncertainties embedded within the current environment, we may rethink this position early if we get a daily close above 1.10 in the days ahead.”