Citi Are Less Bullish On The Euro

Earlier today Citi wrote “while we still consider the ECB under-priced and see further Eurozone terms of trade improvement due to natural gas price declines, China’s industrial cycle is clearly lagging, depriving the euro from additional external demand-related tailwinds.”

• “We now expect EUR/USD will operate in a range of $1.07-1.12, unless the U.S.-RoW growth expectations differential resumes its decline.”
• “At the same time, we do not envisage material downside as leveraged funds have neutral positioning while real-money accounts are long but have initiated positions at lower levels (around $1.05-1.06); that said, a move towards $1.06 would create angst among asset managers and could accelerate any potential sell-off.”
• “Elsewhere, we like EUR upside against cyclically-sensitive currencies, where central bank pricing allows scope for monetary policy divergence.”
• “This suggests EUR/AUD and EUR/NZD upside. EUR/GBP seems difficult to trade currently as the short-term price action suggests downside potential, but fundamentals point to capped UK yields vs core euro area yields. We are neutral on EUR/CHF while we see value in EUR/JPY put spreads.”