Synopsis:

Credit Agricole reports a notable increase in investor bearishness towards EUR/USD, though significant short positions have not been extensively established in the market. Given recent U.S. economic data and revised Fed rate cut expectations, the bank foresees additional potential declines for the EUR/USD pair, suggesting that current market pricing may not fully reflect these bearish prospects.

Key Points:

• Growing Bearish Sentiment: Recent interactions and market behaviors indicate an increasing bearish sentiment among investors specifically targeting EUR/USD. However, Credit Agricole's positioning indicators show that the market has yet to accumulate significant short positions in EUR/USD.

• Lag in FX Market Adjustments: Although bearish sentiment is evident, FX consensus forecasts have not yet adjusted to align with recent market developments and the bank's more negative outlook on EUR/USD. This suggests that the full extent of potential EUR weakness may not be currently priced into the market.

• Impact of U.S. Economic Data: The unexpected upward trend in U.S. CPI data for the third consecutive month in 2024 has led U.S. rates investors to scale back expectations for imminent Fed rate cuts. This reassessment supports a stronger USD outlook, contributing to potential further downside for EUR/USD.

• Prospects for EUR/USD: While some negative factors impacting EUR/USD may already be reflected in its current pricing, Credit Agricole believes that there are additional downside risks ahead. This perspective is based on the ongoing adjustments in U.S. rate expectations and the broader economic context.

Conclusion:

Despite existing market bearishness towards the EUR/USD, Credit Agricole anticipates further downward movement in the pair, driven by recent shifts in U.S. economic indicators and rate expectations. Investors and market participants are advised to remain vigilant, as the EUR/USD may face additional pressures that are not yet fully accounted for in current market valuations. As such, strategies should consider the potential for continued EUR depreciation in the face of strengthening U.S. economic data and monetary policy adjustments.