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TD Securities links EUR/USD weakness to oil and French bond concerns

The firm expects the euro to stay under near term pressure through October, while using a 3 month risk reversal to fade the EUR/USD selloff.

Reported · Written up by our desk · Major Pairs

TD Securities Macro Research, led by Jayati Bharadwaj with contributions from Howard Du and Linda Cheng, said recent EUR/USD weakness has been driven by high oil and diesel prices, along with concerns around French OATs. The outlet also pointed to sentiment stabilizing even as the euro faces continued pressure.

FXStreet notes TD Securities expects near term euro weakness through October, citing market focus on key October dates and a Moody’s ratings review. The firm said renewed fiscal concerns have weighed on EUR, but the reaction has been relatively tame versus the prior episode when OAT Bund widening intensified.

TD Securities also described its positioning view, saying its trend following framework suggested the U.S. dollar rally was becoming stretched versus currencies including the euro, and that G10 FX positioning is broadly short versus the USD except for JPY. It said it intends to fade the EUR/USD selloff rather than chase moves back toward the pre Liberation Day range.

To express that view, TD Securities said it entered a long EUR/USD trade using a 1.16/1.11 zero cost risk reversal, and that it put on a 3 month risk reversal last week, buying a 1.1610 strike call funded by a short 1.11 strike put.

Latest closeEUR/USD 1.122 ▼0.3%

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