Wall Street Investment Banks Set to Long the Euro

Some Wall Street investment banks have begun to lay out their plans for euro ahead of time. The JPMorgan strategist team said they are looking for opportunities to long EUR/USD. Easing of the trade tension recently, as well as the prospect that Europe will adopt more fiscal policies should boost the euro. The deadline for Brexit has been postponed until January 31st next year, clearing the threat of a no-deal Brexit this year; and the new ECB President Lagarde is taking a more aggressive approach than her predecessor Draghi to promote economic growth by issuing new fiscal stimulus. These improvements in risk factors all facilitate the recovery of the euro.

Citigroup said that the price trend also supports the view about a recovering euro. The euros surge in October had set the tone for the future trend. At the beginning of this month, Citigroup established long positions for EUR/USD, buying the pair at 1.1146 and setting stop loss at 1.1025. Their initial target price for EUR/USD is 1.14 or higher, and the pair may hit or even exceed 1.18 by the end of the year.

Meanwhile, Standard Chartered also noted that the exchange rate of the euro against the US dollar may have bottomed out. They suggested to go long on EUR/USD at 1.1090 with a target at 1.1500 and a stop loss at 1.0950.

It is worth noting that the improvement of the above risk factors does not mean that the euro thus becomes risk-free. Uncertainties remain in the trade situation, and the euro zone still faces weak inflation; manufacturing of the 19 countries in the euro zone is still contracting; the International Monetary Fund (IMF) also warned Europe on Wednesday to prepare a contingency plan for possible recession, as the region faces spreading economic slowdown, but theres little monetary policy space left for European Central Bank. All these factors may weigh down on the price of the euro.