Societe Generale Research discusses the current market conditions and likes shorts in EUR/JPY and AUD/NZD.
"Upward pressure on yield differentials is helps the dollar, but the inflation difference is important in its own right. US CPI has risen by nearly 9% relative to the EZ since 1999, a meaty amount of lost competitiveness for the US that will put upward pressure on the trade deficit. And while there’s no short-term correlation between relative price trends and exchange rates, over time, either the inflation gap will have to close, or it is going to act as a brake on US growth, all on its own," SocGen notes.
"If we see EUR/USD break free this summer, we may see a large and persistent slide back down to the pre-Covid range, but that will still be a sign of disequilibrium and won’t last for ever. Meanwhile, the solution is still to favour shorts in EUR/JPY. We still like AUD/NZD shorts too, and we think EUR/GBP can fall (but not on Freedom Day!)," SocGen adds.