Since the start of the week, the tone of ECB comments has been turning progressively more dovish, notes BNP Paribas.
"Following last week’s comments from Nowotny on the EUR’s strength, another ECB policymaker said on Monday the ECB was prepared for negative deposit rates. Although these comments are having little market impact against the backdrop of on-going US political uncertainty, we suspect they will play into a EUR sell-off once those uncertainties are resolved. Indeed, the EUR is already trading well above levels implied by relative interest rates," BNPP adds.
"Similarly, we expect the GBP to be vulnerable to an eventual USD bounce back due to both positioning and some further softening in in data, where our UK economist expects a below-consensus print on the September retail sales later this week," BNPP projects.
In line with this view, BNPP holds a short EUR/USD position from 1.3510, targeting 1.28 with a stop at 1.3730. BNPP also holds a short GBP/USD position from 1.6040, targeting 1.5330, with a stop at 1.6310
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