We advise against selling the EUR in the very short-term. This is due to the heightened risk of the ECB disappointing elevated market expectations, especially when it comes to cutting the deposit rate to negative.
Further improving risk sentiment as related to easing geopolitical tensions as well as improving global growth prospects should keep demand for carry intact. Accordingly, we like crosses such as AUD/JPY and NZD/JPY higher.
The GBP should remain a buy on dips, as further improving UK growth prospects should ultimately come to the benefit of further increasing central bank rate expectations.
Medium term (beyond 1 month):
From a broader angle we remain of the view that EUR rallies should be sold, in particular against the USD and the AUD. This is due to continuing scope for diverging monetary policy expectations.
Further improving US growth prospects should ultimately make a case for the Fed turning less dovish. An improving growth outlook may improve the USD-related capital flow situation too. Accordingly we keep a positive USD stance.
EM FX is likely to benefit from further improving risk sentiment. Higher adjusting Fed monetary policy expectations are unlikely to dampen such an outlook as long as investors’ global growth expectations rise.
From a broader angle we remain in favour of selling JPY rallies. Against market expectations we see scope for further monetary policy easing from the BoJ.