The forex market is long on the dollar and short on euro courtesy bearish sentiment on Europe, says a leading City analyst.
In a note to clients, Kit Juckes, Head of FX at Société Générale, said Chinese and Eurozone data put the “squeeze on euro shorts” on Friday (12 April).
“How far the move goes may depend on whether see an upside surprise from Eurozone PMIs on Thursday (18 April). Better Chinese export data on Friday were followed by a rare upside surprise from Eurozone industrial production, and up went global equities, Bund yields and the euro. But the market is long dollars and short euro, and bearish Europe.”
That’s on account of not enough growth, not enough inflation, too much fiscal inaction and too much “ECB dithering” for some traders' tastes.
“But then, on the other hand, President Donald Trump is happy to castigate the US Federal Reserve, wants lower rates and would prefer a weaker dollar even if he resists the temptation to say so too often or too loudly. As Bund yields rose, so did the euro and so far, the move is carrying on into the current trading week.”
Analysts at SocGen expect an above-consensus jump to 52.3 in the flash April PMI when the data are released on Thursday.
“If that helps drag the Bund yield a bit higher the euro will surely follow it, as it has done for the last year. EUR/USD 1.11450 may be a rather bigger obstacle, to be tested if we do indeed see better PMIs," Juckes concluded.
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