According to Chris Turner, Global Head of Strategy and Head of EMEA at ING, one of the major supporting factors for EUR/USD is the eurozone’s large current account surplus, near 4% of GDP.
Key Quotes
“And despite President Trump’s protectionist push, tax cuts will only widen, not narrow the US trade deficit – presenting a greater supply of dollars on the trade account.”
“Near 1.13, EUR/USD also looks historically cheap. But when hedging USD receivables, European corporates take a longer-term view and the shape of the forward curve plays a significant role.”
“The current interest rate differential between the EUR and USD in the two-year part of the curve has never been wider than it is today at 330 basis points.”
“European corporates in the market to sell their expected USD receivables two years forward (as many do) may not see the EUR/USD as especially cheap compared to the 1.08-1.18 levels that prevailed in the 2015-2017 period.”
“US mid-terms will have an important say in the dollar story for 2019. But the EUR story does not look especially encouraging right now and we are more worried by a potential break under 1.10 than we are by a move over 1.18.”
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