EUR/USD suffered after an ECB member showed caution regarding a new policy move. Is the correction over? Not so fast.

Here is their view, courtesy of eFXnews:

BTMU FX Strategy Research argues that the latest EUR/USD rally is partly a reaction to an extreme dollar over-valuation fuelled more by extreme monetary accommodation beyond the US than by monetary tightening in the US.

“Hence, the prospect of that ending is resulting in out-sized FX moves like we have had in recent weeks,” BTMU adds.

“Our Short-term Valuation model clearly indicates that EUR/USD has overshot and point to the risk of a short-term correction after the recent sell-off fuelled by increased speculation of a shift in monetary stance ahead.

The EUR/USD overshoot relative to our short-term valuation model illustrates in part the fact that while rates have moved higher in the euro-zone, the same has happened in the US,” BTMU notes.