As we have already mentioned, bond yields have a material impact on EUR/USD lately, with the shifts favoring the euro so far.
Will this continue or will it change? The team at Deutsche Bank weighs in:
Here is their view, courtesy of eFXnews:
“There is considerable statistical evidence that the 2 year USD – EUR spread is set to take over from the 10yr spread as the key driver of EUR/USD.
Quantitative work is consistent with a very rough rule of thumb that 100bp shift in the 2y spread in favor of the USD is equal to 10 big figures on EUR/USD.
Forward rates point to an 2y spread adjustment in favor of the USD of 120bps in the next 3 years, enough to be consistent with EUR/USD heading to parity. Greater policy divergence than is priced in by the forwards is likely.”
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