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Feb 26 - 10:55 AM

Credit Agricole: EUR/USD Valuation and Outlook

By eFXdata  —  Feb 26 - 09:30 AM

Synopsis:

Credit Agricole observes a notable rebound in EUR/USD, outpacing its movements against other major currencies like the USD, GBP, and JPY, despite relatively unchanged fundamental drivers. The current levels have propelled EUR/USD beyond its short-term fair value, estimated at around 1.08, suggesting a slight overvaluation at present. Historically, EUR/USD's trajectory has been closely aligned with the nominal and real EUR-USD rate spread and the peripheral yield spread to Bunds, both of which remain near recent lows. For sustained appreciation of EUR/USD, a significant change in these key drivers would be necessary. However, given the recent price adjustments, Credit Agricole holds a neutral stance on EUR/USD from its current position, highlighting that some positive aspects are already reflected in its price.

Key Insights:

  • Rebound and Overvaluation: EUR/USD's recent uptick has positioned it above its short-term fair value, indicating a slight overvaluation in the current market context.

  • Fundamental Drivers: The currency pair's movements have traditionally been influenced by the EUR-USD rate spread and peripheral yield spreads to Bunds, which have not significantly shifted to justify the recent appreciation.

  • Outlook: With the existing price levels incorporating some optimistic scenarios, Credit Agricole suggests a neutral outlook for EUR/USD, emphasizing the need for changes in key economic indicators for further sustained movement.

Conclusion:

While EUR/USD has experienced a rebound, its current valuation slightly exceeds fundamental justifications according to Credit Agricole's analysis. The bank suggests a neutral perspective on the currency pair, pointing to the importance of shifts in critical economic spreads for any future significant appreciation. This stance reflects a cautious approach to EUR/USD, considering the already priced-in positive factors.

Source:
Crédit Agricole Research/Market Commentary

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