The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
A test and subsequent rally could see the pair test the $1.2900 level – although this could be tough going. I prefer short positions on an overreaction through this move and into the 9 September low of $1.2959, with stops at $1.3050.
Fundamentally, the trade makes sense. Reserve managers are huge sellers of EUR’s; we saw that in yesterday’s Chinese FX reserve data. While the EUR has become the world’s preferred funding currency and upside should therefore be limited.
The European Asset Quality Review (AQR) concludes this month – recall a number of banks repatriated non-core assets back to Europe (creating Euro inflows) through late 2013 and into 2014. I would not be surprised to see this trade reverse after the review, with European banks looking for foreign assets.