Sell EURUSD - TDS

Ned Rumpeltin, European Head of FX Strategy at TDS, recommends selling EURUSD at current levels and suggests that their initial target is a move to challenge support in the 1.0250/1.0200 zone but TDS see scope for further downside if this achieved.

Key Quotes

“On an entry of 1.0540, we have placed our stop at 1.0880, just above the 8 December spike high.”

“After a brief period of consolidation, we think the latest upward correction in EURUSD is now complete. Shorter-term positioning now appears cleaner, in our view; the daily RSI has reverted back to the midpoint of its range after reaching deeply oversold levels in mid-November. While we had hoped to enter EURUSD shorts at better levels on a move above 1.09, that now appears unlikely. With the Fed shifting toward an incrementally more hawkish footing, we think momentum is likely to favour the downside as the primary trend lower resumes.”

“With the ECB delivering a ‘dovish taper’ this month, monetary policy remains highly expansionary in the Eurozone. As a result, yield differentials between benchmark 2Y USD and EUR swap rates are wide and getting wider. Other key Eurozone short-term rates, 2Y German schatz for example, continue to trend lower. This points to sustained downward pressure on EURUSD in the weeks and months ahead.”

“European political uncertainty is only likely to increase as 2017 gets underway. Amid a persistent possibility of early elections in Italy, investors will soon turn their attention to the upcoming contest in France. Against this backdrop, a measure of policy uncertainty has returned to levels not seen since June’s Brexit-related all time highs.”