Investors would be remiss to pile into bullish euro positions ahead of the European Central Bank’s meeting next week, cautioned TD Securities analyst Mazen Issa. He expects the central bank to deliver a 20 basis point deposit rate cut and renewed quantitative easing to the tune of $40 billion per month.
“EUR/USD continues to trade on its backfoot after the floorboards at 1.10 broke on Friday,” Issa wrote in a note Tuesday. “We do not think the move should be faded ahead of the ECB’s large-scale easing next week.”
The common currency fell as low as 1.0926 Tuesday, its weakest level since May 2017. The euro briefly erased losses following the weaker-than-expected U.S. manufacturing data, before resuming its slide.
Best of the Rest
While U.S. economic growth has slowed -- the latest evidence on display Tuesday with manufacturing data contracting for the first time in three years -- it still looks resilient relative to the rest of the world. And with the global stock of negative-yielding debt now amounting to $17 trillion, it’s little wonder the greenback remains bid as investors search for yield, according to Juckes.
Even as Citigroup Inc.’s Economic Surprise Index for the U.S. is in negative territory -- meaning reports are tending to miss expectations -- it has rebounded in the past few months, and is well above Europe’s gauge.
“The U.S. has had more growth, higher rates, higher bond yields -- money flows to the U.S.,” Juckes said. “I wouldn’t over-think it when you’ve got negative yields in Japan, the Eurozone, in Switzerland.”
This article provided by Bloomberg News.