"The meetings for the FOMC, ECB and BoE this week will be particularly important in defining the near-term paths of the respective currencies. While their overall outcomes may be mixed, we believe the balance of risks lies in favour of establishing short EUR/USD positions once again and yesterday they did as such. FX reaction functions have changed… The July meetings for the ECB and BoE surprised FX markets by formally (ECB) or de facto (BoE) revealing forward guidance frameworks. We argued that these events have changed the EUR and GBP reaction functions to moves in rates and the currencies will be more sensitive to these movements...While forward guidance has worked against the USD in the past month, we think it is unwise to position against it working for GBP and EUR over the coming weeks. Forward guidance is in its infancy relative to the US but we expect it to put a cap on the respective currencies versus the USD as the short-end of the yield curves start to diverge. In light of this, we have entered a short EUR/USD trade (target 1.28, stop 1.3430, spot ref. 1.3266) but would rather wait until the 7 August QIR before looking at GBP downside again."
Chris Walker, FX strategist at Barclays Capital.
Read More: http://www.efxnews.com/story/19984/exclusive-ahead-fomc-ecb-barclays-sold-eurusd-targeting-128
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