Forex Flash: Risk is for EUR/USD to extend rally - RBS

FXstreet.com (Barcelona) - The Euro continues to consolidate gains around 1.3450, with a fair number of market commentators calling for higher levels in the next few weeks. However, in view of Greg Gibbs, currency strategist at RBS, the idea of beng long the Euro "is still dangerous and we are waiting for dovish ECB comments to arrive" he notes.

While he does not ignore the fact that "the risk remains that the EUR continues to rise, we must remain vigilant to a shift in rhetoric in the ECB towards cutting the policy rate, at which point the EUR should top-out" he says.

Greg expands: "The green shoots of recovery that some may be seeing in the periphery are unlikely to flourish and will be scorched by the headwinds of austerity, depression levels of unemployment, significant banking sector repair required and weak property prices in some countries. France is also diverging from Germany, threatening to open a dangerous front in the crisis."

In summary, RBS's Mr. Gibbs is not comfortable in supporting a EUR rally, and remains a potential seller. But, in his own words, in order to see a lower EUR, "it requires either crisis driven capital outflow or more accommodative ECB policy."