Forex Flash: EUR/USD targets 1.3800 within 1-month – Westpac

“We are still targeting 1.3800 on a 1-month horizon, though suspect the EUR/USD likely to see some corrective price action first.” notes Sean Callow, a Global FX Strategist at Westpac. Berlusconi’s rise in the Italian polls and the slush fund scandal engulfing Spanish PM Rajoy have seen Italian and Spanish equities fall 8% since late Jan and peripheral sovereign bond spreads have retraced a good portion of the compression seen in the first two weeks of the year.

According to Callow, “Against these metrics EUR/USD is more fairly valued around 1.3300-1.3400. However, even a pullback to these levels would still leave the multi-week bullish trend from July 2012 intact. The EUR is a buy into these levels with the decline in the ECB’s balance sheet vs. ongoing expansion in the Fed’s and BoJ’s balance sheets likely to keep the medium term focus on the topside.”