EUR: Rally looks a bit stretched
EUR/USD is trading at the highest levels since early 2022, and CFTC data showed that pre-CPI positioning on EUR/USD was already quite stretched on the long side (+19% of open interest). We also estimate there is currently a 2% short-term risk premium built into EUR/USD, based on our financial fair value model which includes rates and equity factors. This short-term overvaluation gap of EUR/USD could be closed either by a correction or by some EUR/USD-positive factors rising without triggering a climb in the pair.
The week is rather quiet data-wise in the eurozone, but we’ll hear from European Central Bank President Christine Lagarde and other ECB speakers today at a conference organised by the Bank. This is one of the last occasions that could influence market expectations ahead of next week's policy meeting, even though a July hike is likely a done deal and the debate appears already entered about September.
We see some moderate risks of a correction in EUR/USD this week, possibly to the 1.1100/1.1150 area. A continuation of last week’s rally may start to face increasing resistance at the 1.1300/1.1350 area.
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