TD Securities' Macro Research team, led by Jayati Bharadwaj, has provided updated outlooks for both the Euro and the Brazilian Real. For the Euro, the team attributes recent EUR/USD weakness to high oil and diesel prices as well as concerns over French OATs. Despite these pressures, sentiment is reported to be stabilizing, and the reaction to fiscal concerns has been relatively tame compared to previous episodes of OAT-Bund spread widening. The team expects the Euro to remain under pressure through October, particularly as markets approach key dates and the Moody’s ratings review. However, they do not foresee a derailment of the broader trajectory beyond October, especially if France maintains its 2027 deficit in the low-5% range and stress remains localized to OATs rather than spreading systemically across the euro area [1].
TD Securities notes that the USD rally appears stretched against several G10 currencies, including the EUR, GBP, CAD, SEK, and MXN, with G10 FX positioning broadly short versus the USD except for the JPY. As a result, the team prefers to fade the EUR/USD selloff rather than chase it back to pre-Liberation Day levels. They have entered a long EUR/USD trade via a three-month risk reversal, buying a 1.1610-strike call funded by a short 1.11-strike put, to express their bearish USD year-end forecast at what they consider an attractive spot entry level [1].
In contrast, TD Securities highlights a constructive outlook for the Brazilian Real (BRL), citing diversified commodity exposure and strong carry as key strengths. Their short-term fair value model places USD/BRL near 5.00, excluding political risk, but they favor the cross moving below 5.00 toward 4.60 in the longer term. The political backdrop, particularly a narrow first-round election result and a center-right skew in remaining votes, is seen as favoring Bolsonaro and supporting BRL strength. The team notes that no Brazilian runoff has started with such a narrow margin, but historically, the first-round leader has won every runoff since 1989. They recommend buying BRL on USD/BRL spikes, with potential for the cross to break May lows and test 4.80 on a decisive Bolsonaro Round 2 win [2].
TD Securities further emphasizes that the BRL retains a solid macro backdrop, with compelling volatility-adjusted carry even in the face of further BCB easing. The election result is viewed as removing a key near-term hurdle and reinforcing a broader rightward shift in Latin America [2].
CONCLUSION
TD Securities maintains a cautious but stabilizing outlook for the Euro, expecting near-term pressure but favoring a rebound against the USD by year-end. Meanwhile, the Brazilian Real is seen as well-positioned for gains, supported by political developments and strong macro fundamentals. Both currencies present tactical opportunities, with the Euro expected to recover post-October and the BRL favored on USD/BRL rallies.