The one we have all been waiting for. Stolper about to be 9 out of 9 with a 0.000 hit rate.
The latest Eurozone PMIs have been better than expected and are now consistent with slightly positive growth.
At the same time, Eurozone policymakers continue to make gradual progress on the ESM and Fiscal Compact Treaties. Finally, the Fed has surprised markets with a more long-dated interest rate guidance than expected. In particular the Fed now expects "exceptionally low levels for the federal funds rate at least through late 2014," which is at the margin more dovish than anticipated by the market. All these factors suggest that EUR/$ could continue to rally in the near future and the Dollar could weaken more broadly, in line with our long-held underlying view and forecasts.
Some risks persist, though. The main source of Eurozone uncertainty at the moment remains the Greek PSI negotiation and potential contagion. However, the range of debated NPV reduction is relatively narrow, suggesting an agreement is not that far away. On balance, we therefore think the positive PMI and Fed surprises outweigh the remaining PSI-related concerns.
Overall, near-term downside risks for EUR/$ – though of course they remain – appear to have been reduced. We expect further gains in EUR/$ from current levels, in line with our constructive 3-, 6-, and 12-month forecasts. We would go long EUR/$ with a stop on a close below 1.29 for an initial target of 1.38.
Time to short EURUSD at 1.3093