EUR/USD is holding above 1.10 but looks a bit heavy. What is the next direction, up or down?
The team at SocGen discusses:
Here is their view, courtesy of eFXnews:
With passage of the Greek debt deal legislation through Germany’s parliament looking secure today, that issue, for now at any rate, may be put to bed. 10-year Bund yields are at 64bp and would need to push a good bit lower to undermine the euro, which will be stuck in its narrow range against the dollar until the publication of the FOMC minutes, says SocGen.
“If anything, there’s a bias to re-test/break EUR/USD 1.11, but really, something needs to change in EA/US rate differentials to move the pair meaningfully. There’s more scope for a meaningful move (one way or the other) in the 2.19% 10-year Treasury yield than the 64bp Bund and likewise, the 2-year swap rate differential is made up of 95bp in the US and 9bp in Euros,” SocGen adds.
“Past correlations would tell me that breaking the bottom of the current EUR/USD range, at 1.08, would be best achieved by the US 2-year rate jumping to around 1 1/4%. That’s both a huge move relative to the recent range, and a very small one in the context of the historical reaction to Fed tightening being imminent,” SocGen argues.
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