There’s a USD in EURUSD
Ex-post, the ECB clearly ‘delivered’. EURUSD ended European trading on Thursday materially lower than levels after the CPI reading last week. In addition, the noticeable step closer to a potential deposit rate cut will likely serve as a strong deterrent against EUR longs in the short term. Our FX Flow Monitor indicates that the burden of adjustment on EURUSD long-liquidation will likely fall on asset managers, but like other investors they will need to decide if the ECB or European developments in general are enough to keep the position on. After all, there is a ‘USD’ in EURUSD, and markets should bear in mind the Fed/US tailwinds to this trade as we head into the payroll print (UBSe. 100k, cons. 120k).
Read the full report: UBS