Weaker US data needed to test USD rally
The stronger USD continues to dominate local events with worse Q1 eurozone GDP and a slightly more positive BoE Inflation report a sideshow. The market continues to push USD higher with EURUSD and AUDUSD below yesterday’s session lows of 1.2912 and 0.9877. The current market assumption is for much stronger US growth; real 10Y US yields are up some 30 bps since May 3 when the better April non-farm payrolls data was released. The USD has followed higher. We think these assumptions could be tested today; our economists forecast both the April Empire manufacturing and March industrial production to fall back. Our fixed income colleagues concur and think the sell-off in US treasuries is overdone at this point. We maintain a long EURUSD trade recommendation at 1.30 targeting 1.3400, with a stop set at 1.2840.
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BNP Paribas