EUR/USD: 'Reflating Reflation Trade, Deflating Convergence Trade' - Credit Agricole




Credit Agricole CIB FX Strategy Research discusses EUR/USD outlook, noticing that the US reflation trade has staged a comeback as of late as the USD regained lost ground across the board as investors focused on the positive impact on the growth of the coming US tax reform.
"In addition, bets have intensified that the change at the helm of the US Federal Reserve would boost its credibility and help close the gap between market rate expectations and its ‘dot plot'.  A critical evaluation of these USD-bullish arguments warrants cautiousness in our view, however...
The renewed USD-rebound has gone hand in hand with a sharp deterioration in the outlook for the so-called FX convergence trade, which saw the EUR, Scandi currencies and CAD rallying earlier this year," CACIB adds. 
In line with this view, CACIB has fine-tuned its EUR/USD Q4 forecasts to 1.19 implying that risks are still on the upside for the pair going into the year-end.

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