EUR/USD: Targets On Modelling Rate Spreads & Positioning; What's The Trade? - Nordea

Nordea FX Strategy Research discusses EUR/USD outlook in light of modelling it based on rate spreads and positioning.

On rate spreads modelling: "If the 2y xCcy basis swap widens by 10bp further – clearly possible given the turn & liquidity effects seen in 2015 and 2016, the above approach suggests EUR/USD will trade below 1.14 later in November (assuming an unchanged 2y rate differential)," Nodea notes

On positioning modelling: Another way of looking at this pair is just to model it based on spreads as well as EUR positioning. A halving of current EUR longs implies a slow drop towards 1.12," Nordea adds. 

"We thus think the downtrend in EUR/USD is still your friend. But if risk sentiment weakens enough, we might get new entry opportunities for shorts around 1.1750 (down-channel since September)," Nordea argues.

Source: Nordea Research