Credit Suisse flags a scope for EUR/USD to test 1.16 in the near-term.
"Since the “Franco-German Agreement” of mid-May catalysed the concept of meaningful debt mutualisation for the European Recovery Fund, the market has suppressed periphery vs core bond spreads and taken a more constructive view on EUR.
But with the ECB pushing back verbally against rising EUR valuation, and Europe seeing a new Covid-19 wave with lockdown risks amid softening growth, extended long positioning opens the door for a test of the EURUSD 1.1600 level in coming weeks," CS notes.
"The ECB has jumped the gun this time around by already pointing out the potential disinflation risks associated with EUR strength. This should cap strength beyond EURUSD 1.20 before 3 Nov US elections," CS adds.