Barclays: Sell Euros this Week

- Targetting a fall below 1.20

- Reckon a hawkish Fed / bearish ECB contrast should send Euro lower

© kasto, Adobe Stock

Strategists at Barclays are recommending selling the Euro and buying Dollars this week.

"We recommend a technical short EURUSD trade as the pair has broken below its support trend line," say Barclays in a briefing released ahead of the new week.

The trade is in line with the view held by strategists that there is "limited scope for EUR appreciation in 2018."

"With the ECB's shift in policy now fully accepted by markets, its gradual path to normalisation is unlikely to fuel gains for the single currency, which in our view is already around fair value," say strategists.

The European Central Bank is expected to announce the cessation of its asset purchase programme (APP) in the second half of 2018 ahead of a potential interest rate rise in 2019; it was expectations for this shift in policy that made the Euro one of the best performing global currencies in 2017.

The bet at Barclays is that this driver of Euro support is now due to fade.

Markets will get more of an insight into the ECB's thinking on Thursday, April 12 when they minutes of the last policy meeting are released. However, Barclays do see a risk that the minutes are on the 'hawkish' end of the spectrum and they reveal "the decision to drop the pledge to step up APP matched by a desire for faster deposit rate hikes."

This could boost the Euro if it does come to pass.

But, a policy update from the US Federal Reserve is expected to be supportive of the Dollar; "Wednesday's FOMC minutes may read hawkish, in line with revisions to the dot plot, especially against Chairman Powell's dismissal of those changes in the press conference," say Barclays.

Rare price compression in #EURUSD. Contracting daily and weekly ranges indicate a drop in volatility - these periods are often followed by price expansion...#FX #USD #EUR #volatility pic.twitter.com/gfR2h6Bris

— Faraday Research (@FaradayResearch) April 9, 2018

The US Dollar fell across the board after the US Federal Reserve raised interest rates in March but signalled they were in no rush to hasten the pace at which they raise interest rates in the future. However, the much-watched ‘dot plot’ graph of FOMC participants’ interest rate expectations - contained in the latest set of economic forecasts - shows that the majority think this policy will require two further interest rate rises in 2018.

Barclays reckon a hawkish Fed / bearish ECB contrast should set up further declines in the Euro-to-Dollar exchange rate.

"With EURUSD having broken its support trend line, this presents an opportunity to initiate a technical short EURUSD trade. Spot reference 1.2265, target 1.1948," say Barclays.

1.1948 is the 200 day moving average which is where technical strategists typically expect strong buying interest to re-emerge.  

A stop-loss is tipped for 1.2244.

The reward to risk profile is around 1.8 to 1.

Advertisement
Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here.