BNP Paribas positioning analysis signals the EUR is now largest long position in G10 FX, with a score of +18 (on a scale of +- 50). Broad risk-off continues to translate into broad EUR strength, underscoring the EUR’s characteristics as a funding currency. However, with a number ECB speakers scheduled to appear in the week ahead we think there is potential for dovish central
bank commentary to dampen the EUR rally. ECB Vice President Constancio speaks on Tuesday, followed by comments from Executive Board members Praet and Coeure on Wednesday and Thursday. Although our economists expect Germany’s Ifo business confidence to improve on Monday we think the ECB will be mainly concerned over a stronger EUR and falling inflation
expectations with the ECB’s preferred 5y5y measure down by around 20bp since early July. Furthermore, falling oil prices are likely to push even further the timeline for achieving the inflation target. We maintain a short EURGBP recommendation via options. The second estimate of UK Q2 GDP on Friday should confirm that the economy expanded at a solid 0.7% q/q pace.
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