Optimism on growth in the rest of the world rebounding should weaken USD and help EUR. Rebounding China data should filter through to better eurozone data over the coming months. This could come through in this week's German April ZEW survey and eurozone April flash PMI, helped further by easing Brexit concerns and generally stronger equity markets.
While EUR offers low funding costs, it is the EUR-funding related short positions which could push EUR higher as data improve. Over recent days, German 5-year breakeven rates have caught up with the rise in US breakeven rates, and EMU sovereign spreads have come in. This meets a market that is positioned very short EUR and very long USD.
The risk to this trade is a downside surprise in eurozone April data.
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