FXstreet.com (Barcelona) - EUR/USD has shown a clear divergence
from RBS short-term fair value over the past month, as the
relationship between rate spreads and EUR/USD has broken down over
the past month, notes RBS strategist Brian Kim.
"We believe the divergence in EUR/USD and our fair value estimate
may be related to both positioning and year-end flows" Brian
comments. By looking at seasonal patterns since 1995, Brian
observes that "EUR tends to be among the stronger performers in
December but is among the worst January performers, while the USD
is the second strongest G10 currency in January..."
Another factor contributing to EUR/USD short recommendation by RBS
is that the market appeared to remain very short of EUR as per CFTC
data. "Since the net short EUR position has fallen dramatically and
non-commercial positioning on the IMM in EUR contracts is now
nearly flat, there is room for fresh EUR shorts to be established"
Mr. Kim mentions.
RBS expects "increased funding pressure on Spain during the New
Year, a rate cut by the ECB, and, potentially, a renewed US fiscal
debate over the fiscal cliff to result in a decline in EUR/USD in
the near-term, putting the pair better in line with its fundamental
drivers" Kim says.
RBS puts now on a EUR/USD exposure at 1.3065, target at 1.2650,
with a stop-loss above 1.3310 after its double failure, "a level
which has acted as resistance twice in the past month and may have
formed a double top" Kim adds.