Everyone wants to buy a dip

Societe Generale FX Strategy Research notes that the dollar's trade-weighted index (TWI) continues to track real yields fairly faithfully, but right now that leaves the dollar in no man's land.

In that context, SocGen notes that the improving correlation of the euro's TWI with real German bond yields.

"It's more usual to see the euro TWI track EUR/USD, which in turn is more affected by US yields than European ones, but as the latter get stuck in a range, Europe matters more. With strong economic data, fading political concerns and two weeks to go until the June ECB meeting, German real yields are on an uptrend," SocGen adds.

"We worry that EUR/USD has run ahead of relative yields and has been supported by speculative adjusting from a big short to a net long position in a short period of time. That could see positions cut back quite quickly.

Still, that's only another way of saying that EUR/USD is a medium-term buy and a short-term buy on a dip," SocGen argues.

BTMU FX Strategy Research notes that there has been some softening of EUR upward momentum as of late suggesting that a lot of good news is already discounted in the near-term.

In addition, BTMU notes that over the past week ECB President Draghi, ECB Chief Economist Praet, and ECB Vice President Constancio all continued to deliver dovish rhetoric which highlights that there is a risk that the market could be getting a little ahead of itself by expecting a more material change in policy.

"It is consistent with the signal from our short-term valuation model that the current spot rate is modestly overshooting key fundamental drivers.

Building US political risks have reinforced US dollar weakness in the near-term. The scope for further US dollar weakness should be dampened by the clear signal form the Fed that it plans to raise rates again in June," BTMU argues.

In the near-term, BTMU is neutral on EUR/USD targeting EUR/USD in a 1.10-1.14 range.

Credit Agricole CIB FX Strategy Research notes that that the EUR has been well supported as of late, regardless of both ECB President Draghi and the central bank's Chief Economist Praet suggesting that core prices remain subdued.

"It appears that a more constructive risk asset related capital flow situation has been keeping the single currency supported. However, with investors' focus shifting back to price data and as we do not excluded that next week's preliminary May CPI reading will surprise on the downside," CACIB argues.

"...We advise against buying the EUR around the current levels. This is especially true as speculative EUR long positioning has reached levels not seen in several years. While keeping a constructive long-term view, we believe better levels for engaging in longs will be reached," CACIB advises.

That kind of consensus sometimes spells out a dip that never comes.

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