The EUR has proven more resilient than anticipated at the onset of this year, even amidst widening yield spreads signaling potential policy divergence between the ECB and Fed. 

Supporting the EUR is mounting evidence of a strengthening cyclical momentum in the euro-zone economy, a trend I anticipate persisting as the negative impact of energy price shocks gradually wanes. 

Simultaneously, indications of a potential slowdown in the US economy are emerging. For the first time in over a year, economic data in the US is failing to consistently surpass expectations. The US rate market has adjusted significantly to discount any Fed rate cuts this year. 

In my assessment, this adjustment may have overshot, leaving room for US rates and the USD to experience further downward correction in the near term. A key risk to this outlook would be if US inflation exceeds expectations for the fourth consecutive month in April. Should inflation align with or fall below consensus forecasts, it could impede the USD from regaining upward momentum.

Closed the short and openeda LONG targeting 1.10

May 15 2024

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