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30 Dec 2014
EUR/USD might drift to 1.20 levels in the next few days – SG
FXStreet (Barcelona) - Kit Juckes of Societe Generale believes that the only thing supporting EUR/USD now is short covering, hence anticipates the pair to head towards 1.20 levels in the next few days, further notes that Fed hiking rates in 2015 might lead to a big fall in the pair.
Key Quotes
“The prospect of Greek elections in late January didn't come as a huge surprise and the initial reaction in the FX market was muted. But 10-year Greek bond yields rose by over a percentage point to stand at 9.4% this morning.”
“With the outcome of the election unclear, it's hard to see anything other than short-covering supporting the Euro, and a drift to EUR/USD 1.20 in the next few days still seems possible.”
“The Euro's slide since mid-year has bailed out the bearish Euro consensus this year. It's also allowed the view that currency moves reflect relative economic performance, to regain some support.”
“It isn't so much the weakness of the European economy that has undermined the Euro this year, as the policy response from the ECB, moving to negative deposit rates and raising the possibility of QE. Likewise, it is not the acceleration in US growth since the spring that is supporting the dollar, but growing confidence in the market that the Fed will start raising rates in 2015. 2-year Treasury yields may be low at 70bp, but that have doubled over the course of this year.”
“If the Fed hikes rates (even once) in 2015, 2-year yields will be a lot higher than this in a year's time and the dollar will be stronger. Believing this will happen is scarily consensual, so the stakes are pretty high -especially if the slide in Spanish inflation is mirrored in the US, for example..But by the sae token, if the Fed does finally start raising rates, the extent of the dollar rally (and the EUR/USD fall) could be pretty big...”
Key Quotes
“The prospect of Greek elections in late January didn't come as a huge surprise and the initial reaction in the FX market was muted. But 10-year Greek bond yields rose by over a percentage point to stand at 9.4% this morning.”
“With the outcome of the election unclear, it's hard to see anything other than short-covering supporting the Euro, and a drift to EUR/USD 1.20 in the next few days still seems possible.”
“The Euro's slide since mid-year has bailed out the bearish Euro consensus this year. It's also allowed the view that currency moves reflect relative economic performance, to regain some support.”
“It isn't so much the weakness of the European economy that has undermined the Euro this year, as the policy response from the ECB, moving to negative deposit rates and raising the possibility of QE. Likewise, it is not the acceleration in US growth since the spring that is supporting the dollar, but growing confidence in the market that the Fed will start raising rates in 2015. 2-year Treasury yields may be low at 70bp, but that have doubled over the course of this year.”
“If the Fed hikes rates (even once) in 2015, 2-year yields will be a lot higher than this in a year's time and the dollar will be stronger. Believing this will happen is scarily consensual, so the stakes are pretty high -especially if the slide in Spanish inflation is mirrored in the US, for example..But by the sae token, if the Fed does finally start raising rates, the extent of the dollar rally (and the EUR/USD fall) could be pretty big...”