EUR/USD managed to somewhat stabilize after the big falls, but we have to note the background; an ongoing drop in rates, and now below zero.
The team at RBS sheds some light on this phenomenon:
Here is their view, courtesy of eFXnews:
Cash rates in the Eurozone have continued to sink below zero to new record lows; 3mth OIS is at -12bp, notes RBS.
“Much has been made of the ECB Council Member Benoit Coeure’s speech at a hedge fund gathering on Monday, released to the public on Tuesday. The focus was on his comment that the ECB intends to front load bond purchases this month and next to compensate for less liquid summer markets. But the crux of his speech was about how the theoretical zero bound for cash rates is actually substantially below zero and policy can crush rates across the curve lower to achieve more policy easing if required,” RBS adds.
“Indeed cash rates in the EUR are settling below zero across the front of the curve. As we have contended for some time this policy is likely to make the EUR very cheap, driving cash out of EUR into other currencies,” RBS argues.
For lots more FX trades from major banks, sign up to eFXplus
By signing up to eFXplus via the link above, you are directly supporting Forex Crunch.