Exiting recession in Europe, but not policy stimulus. Fade EURUSD strength.
GDP reports on Wednesday will likely confirm that the Eurozone technically exited recession in Q2, with our economists projecting expansion for the first time since Q3 2011. With data having improved over the course of July, we expect the ZEW measure of analyst expectations for Germany to also show further gains. Still, we would emphasize that the recovery in Europe is coming from very weak levels and the ECB remains far behind the Fed in terms of discussion of exit strategy. Growth in the peripheral economies remains inadequate to comfortably meet fiscal objectives, and we think the risks remain skewed towards further ECB policy easing. We remain bearish on EURUSD at current levels and note that CFTC data released Friday shows net speculative EUR positions have flipped to slightly long – the first time we have seen this since June. Our own BNP Paribas FX Positioning Analysis had already been signalling a net long EUR exposure at +9 (-50 to +50 scale).
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BNP Paribas