EUR/USD to erase EU deal gains in a risk-off environment – CIBC
29.07.2020, 07:40

EUR/USD to erase EU deal gains in a risk-off environment – CIBC

FXStreet reports that EUR/USD have now seen five straight weeks of appreciation, the longest such stretch since February 2018. Jeremy Stretch from CIBC Capital Markets expects the world’s most popular currency pair to erase some gains amid a risk-off environment after the EU deal, however, he still targets the pair at 1.19 in the long-term.

“While the €750 billion rescue package, and the new 7-year Multiannual Financial Framework was not quite a ‘Hamiltonian moment’, it is path breaking given that grants were given to those most affected by Covid. That’s true even though the grant component was watered down from the original Franco-German proposal, still, full debt mutualisation remains something of a pipedream.”

“Since the deal will benefit hard-hit Italy and Spain, expect yield differentials between the periphery and Germany to continue to compress. The currency has been supported by material increases in euro holdings by real money investors in the last four months.” “Leveraged investors betting against the euro have also been squeezed. But given our expectation for a risk-off environment in the next few months, we look for the euro to give back some of its recent gains in the upcoming quarter while retaining a longer-term target of 1.19.”

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