TD expect a lower EUR and GBP against the USD.
Reasoning:
We have noted for some time that the major themes in the FX market boil down to
- 1) global growth
- 2) inflation and terminal rate pricing
- 3) terms of trade shock
A USD turn will require a convincing shift in the first two factors. while Europe and parts of Asia also align closely with the third.
While our growth regime tracking indicator has seen an improvement in data surprises, global growth expectations still favour further EUR downside. Coupled with that, EUR is trading rich to our GMPCA framework. increasing near-term vulnerabilities.
Things can get much worse in the short term for GBP, reflecting the lost confidence in assets and a weak net international investment position. The government has doubled-down the fiscal package. while the BoE will likely fall short of pushing up real rates enough to offer a proper backstop to GBP.
For both EUR and GBP. terms of trade is a lingering Q4 concern.
TD are targeting a move to
- 0.9300 for EUR/USD (stop 1.03)
- and 1.0400 for GBP/USD (stop 1.18)
over the next 2 months.
TD say the stops are wide:
- Given the extremely elevated volatility levels
- reflecting our conviction on the direction of travel rather than the destination
--
EUR/USD update:
