The July European Central Bank (ECB) meeting is expected to result in no changes to policy, according to TDS macro strategists. This lack of action is likely to have little impact on the Euro (EUR) as the ECB is expected to maintain its current stance. In fact, TDS is biased towards a weaker EUR in the near future.
The upcoming ECB meeting is expected to maintain the status quo, with no major policy changes anticipated. The current ECB stance and economic data suggest that no significant shifts are likely at this time. TDS does not believe that a softer tone is necessary to pave the way for a potential rate cut in September. Therefore, the language is expected to remain largely unchanged from the previous meeting in June.
While the July ECB meeting may not result in any significant moves for the EUR, TDS believes that now is a good time for investors to consider short positions on the currency. G10FX, which includes the EUR and the British Pound Sterling (GBP), are seen as attractive options for investors looking to capitalize on potential weakness. TDS recommends looking for opportunities to fade the EUR, with an entry point of around 1.09 for medium-term investors.
TDS’s thematic FX portfolios are currently weighted towards a weaker EUR, with short positions in growth, carry, equity, and risk baskets. The EUR is also viewed as overvalued in the short term based on TDS’s short-term value signal (HFFV). As a result, TDS expects the EUR to potentially fall below 1.05 in the second half of the year, further supporting their bearish outlook on the currency.
Overall, the outlook for the EUR in the near future is bearish, with TDS expecting the currency to weaken in the coming months. The lack of expected action at the July ECB meeting is unlikely to provide any support for the EUR, and TDS’s bias towards a weaker EUR is reflected in their thematic FX portfolios. Investors looking to take advantage of potential weakness in the EUR may consider short positions or fade opportunities in the currency. TDS’s strategic approach to the EUR suggests that a break below 1.05 is possible in the second half of the year, further supporting their bearish outlook on the currency.
