Credit Suisse flags some reasons for caution on EUR/USD in the near-term.
"1- The dislocations and high volatility in precious metals markets such as gold and silver have room to spook other markets such as FX too. Indeed this can already be seen in the inverted implied volatility curves seen across major FX markets.
2- The unusual scale of recent moves begging for a pause, we note that some positioning indicators such as IMM data are finally pointing to extended USD shorts / EUR longs," CS notes.
"3-The market narrative, which appeared to us consistently doubtful of our core USD-negative view over recent weeks, has suddenly swung towards the idea that a weaker greenback is a “no brainer” due to factors such as negative implied real rates that have been a reality for many weeks now. The “USD debasement” story is now front page news again, which for us means more caution is needed despite having been USD bears for months waiting for exactly this moment to materialize again.
4- News from Europe has turned negative on the margin with a fresh outbreak of Covid risk plaguing major countries like Germany and Spain. If this leads to a new phase of extended lockdowns and quarantines, the gloss around the current European economic recovery story could fade quickly," CS adds.