6 May 2014
EUR/USD potential test of 1.4000 - Societe Generale
FXStreet (Barcelona) - Kit Juckes, Global Head of Currency Strategy at Societe Generale, sees the pair testing the 1.4000 psychological level.
Key Quotes
"In Europe, the question is whether the Euro will follow the ECB/Fed standoff or remain in thrall to tightening peripheral bond spreads. The latter, I suspect..."
"The 10year Bond-Bund spread hasn't been below 150bp since July 2010, but at 153bp this morning, it is making a concerted effort to break lower. The Greek debt crisis exploded into bond and currency markets in the spring of 2010, taking EUR/USD below 1.20 and causing a complete rethink about how ‘safe' peripheral government bond markets are."
"Ever since then, EUR/USD has been driven more by appetite for European assets than by interest rates. Since late October, rate spreads have moved in the dollar's favour, while peripheral spreads have moved in the Euro's."
"The upshot is a standoff, with EUR/USD 0.4% higher now than it was on October 25, having traded in a 1.33-1.3970 range. I don't know how much further peripheral spreads can tighten, but the FX market will probably react more to that, than to any further move in relative rates (and I'm not sure how more those can move either, until the Fed gets closer to hiking)".
"In short, I still fancy EUR/USD to be a lot lower once the Fed hiking cycle is actually underway, but for now could still break 1.40 on a position-adjustment."
Key Quotes
"In Europe, the question is whether the Euro will follow the ECB/Fed standoff or remain in thrall to tightening peripheral bond spreads. The latter, I suspect..."
"The 10year Bond-Bund spread hasn't been below 150bp since July 2010, but at 153bp this morning, it is making a concerted effort to break lower. The Greek debt crisis exploded into bond and currency markets in the spring of 2010, taking EUR/USD below 1.20 and causing a complete rethink about how ‘safe' peripheral government bond markets are."
"Ever since then, EUR/USD has been driven more by appetite for European assets than by interest rates. Since late October, rate spreads have moved in the dollar's favour, while peripheral spreads have moved in the Euro's."
"The upshot is a standoff, with EUR/USD 0.4% higher now than it was on October 25, having traded in a 1.33-1.3970 range. I don't know how much further peripheral spreads can tighten, but the FX market will probably react more to that, than to any further move in relative rates (and I'm not sure how more those can move either, until the Fed gets closer to hiking)".
"In short, I still fancy EUR/USD to be a lot lower once the Fed hiking cycle is actually underway, but for now could still break 1.40 on a position-adjustment."