Two upside risks for EUR/USD in the week ahead
I just posted on upside risks for AUD today here:
Which puts me in the upside risk mood!
This via a note from Nordea
- “We stick to our EUR/USD shorts (and would take profit around 1.1450), but acknowledge that a further escalation of Trump’s trade rhetoric at the G7 summit next week or a potential re-pricing of the Italian risk premium in the EUR are the two biggest upside risks for EUR/USD currently.”
The bank cites both shorter term and a bit of a bigger picture … and plenty of scope for indecision (and thus two-way trade IMO):
- The initial market take-away on tariffs is USD-negative (at least it was USD negative in March, when the prospects of the tariffs were introduced to the market).
- But if the trade-tariffs work as intended, it should decrease the amount of imports and, hence, leave fewer USDs floating around in the international financial system.
- This is eventually USD-positive (and should also make the USD xCcy more expensive). A more broad-based trade-war will likely also lead to a significant downturn in the global growth momentum. Something that usually also coincides with a stronger USD. But obviously one-sided tariffs imposed on US imports will lead to structurally higher prices in the US, which should weaken the USD fair value from a PPP-perspective. But if trade-tariffs were to structurally weaken the USD, then it would be a panacea for the twin-deficit. But it likely isn’t.
(bolding is mine)
Leave a Reply
Want to join the discussion?Feel free to contribute!