Danske Research discusses the latest readings from its G10 Medium-Term Valuation (MEVA) model and flags the largest scope for upside potential in EUR/CHF and GBP/USD.
"Broad USD weakness has gained traction and caused the USD to stand out as ‘less overvalued’ compared with the latest update of our G10 Medium-Term Valuation (MEVA) model: the dollar (DXY) spot index has corrected towards the corresponding weighted model estimate recently. Changes to fundamental correction potential based on MEVA have been driven mainly by spot moves, and, notably, past months’ level shift higher in EUR/USD spot has taken the cross quite close to ‘fair’ at 1.22," Danske notes.
"In the EUR sphere, CHF is now the most overvalued, having failed to appreciate much on EU optimism and as the valuation estimate has risen (1.26). In the USD sphere, the largest correction potential is found in GBP, suggesting significant room for upside if/when the Brexit risk premium fades. Finally, according to MEVA, both AUD and CAD still hold potential, which may be unlocked if global reflation gains further traction," Danske adds.