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May 06 - 12:55 PM

EUR/USD: Still Looking Quite Undervalued; A Buy On Dips N-Term - Credit Agricole

By eFXdata  —  May 06 - 11:00 AM

Credit Agricole CIB Research discusses the EUR outlook and sees a scope for EUR/USD recovery in the short-term.

"In the case of EUR/USD, we note that the pair is still looking quite undervalued relative to its short-term fair value of 1.09 that we estimate based on drivers like the EUR-USD rate spread and box yield spread as well as peripheral yield spreads to Bunds among others. This much could make EUR/USD a buy on dips in the very near term especially if the upcoming US inflation data signals next week that the worst of the inflation overshoot is behind us," CACIB notes. 

"Focus in the near term will also be on a number of ECB speakers who could emphasise the shift in the ECB thinking with respect to the importance of currency stability as one of the tools to fight the worsening inflation overshoot in the Eurozone. This could further reduce the appeal of the EUR as a funding currency and lead to the unwinding of EUR-funded carry trades," CACIB adds. 

Source:
Crédit Agricole Research/Market Commentary

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