Investing.com - Financial Markets Worldwide

Consider Adding EUR/USD Longs‏

ByDanske Markets
Published 03/01/2013, 06:31 AM
Updated 05/14/2017, 06:45 AM

Risk markets are correcting lower -- the MSCI world equity index is down 2% from its peak and EUR/USD is down more than 4% from its February-1 high.

The underlying macro environment remains supportive for risk assets (global PMI troughed in August) but positioning and price momentum became stretched by late January.

This made the market ripe for a correction -- which has now been triggered by concerns about Italy and U.S. policy.

Price momentum, positioning and model valuation indicate that there is potential for a further euro correction -- although risks appear slightly more balanced against the dollar.

EUR/USD spot has now moved below our short-term model and the 14-day RSI (price momentum) has been down towards 30 -- indicating increasingly attractive risk/reward from long positions.

Given that this is a correction in an underlying bull market for risk assets (and not a market trend reversal), the main part of the EUR/USD correction should be behind us. We would likely have to see a bear market in risk assets or a more significant sell-off on the European sovereign bond market for EUR/USD to correct much below 1.30. This is not our expectation.

The euro correction has potential to run further, but consider gradually adding EUR/USD longs (gradually increase USD asset/income hedges) as the risk/reward from this position has become more favourable.

To Read the Entire Report Please Click on the pdf File Below.

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