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Jun 24 - 06:55 PM

SocGen: Limited Upside for EUR/USD Near-Term

By eFXdata  —  Jun 24 - 03:00 PM

Synopsis:

SocGen expresses skepticism about EUR/USD rising above 1.08 in the very near-term. The focus is on the upcoming US core PCE deflator data, which the Fed targets. Despite some recent positive economic surprises, the current market environment and broader sentiment suggest limited potential for significant gains in the EUR/USD pair.

Key Points:

  1. US Core PCE Deflator Data:

    • The core PCE deflator is crucial as it is targeted by the Fed, though core CPI is deemed more informative.
    • SocGen doubts the market will gain substantial insights from this data release.
  2. Downbeat Economic Expectations:

    • Recent IFO data confirms a downward trend in expectations, mirroring PMI results.
    • The uncertainty surrounding the French elections may be contributing to increased caution and uncertainty.
  3. EUR/USD and Yield Differential:

    • A regression analysis of EUR/USD against the OAT/Bund yield differential suggests that EUR/USD could be heading towards parity.
    • The fact that EUR/USD is not at parity indicates a market already heavily invested in USD, with limited potential for further euro selling.
  4. Market Sentiment:

    • The existing long positions in USD reflect a belief in US exceptionalism.
    • Despite a slight Monday morning bid for EUR/USD, SocGen remains doubtful about the pair reaching 1.08 or higher in the near-term.

Conclusion:

SocGen remains cautious on EUR/USD, doubting it can rise above 1.08 in the near-term. The economic data and broader market sentiment, including the influence of French political uncertainty and a heavily USD-long market, suggest limited upside potential for the euro against the dollar.

Source:
Société Générale Research/Market Commentary

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