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10 Dec 2014
EUR/USD correlating closely with rates now – SG
FXStreet (Barcelona) - Kit Juckes, Global Head of Currency Research at Societe Generale, notes that with the peripheral spreads being range-bound, the correlation between EUR/USD and the 2-year EU/US rate differential is very high.
Key Quotes
“The Euro, meanwhile, has staged another of its mini-bounces. 'Mini' is the operative term as these have consistently been too small for those looking to sell into rallies. They also tend to be driven by relative short-term rate moves.”
“With peripheral spreads so range-bound, maybe it's no surprise that the correlation between EUR/USD and the 2-year EU/US rate differential is very high. US rates (and yields along the length of the curve) are drifting back down after Friday's spike, despite yesterday's data. JOLTS job openings and the NFIB small business optimism were both very strong and so the rate move won't go much further.”
“The FOMC next week is now the big event for the market to watch for, and our bias is to look for the strengthening data to turn into a gradual move towards less dovish language, in turn flattening the US yield curve and sending EUR/USD over the edge and down to/through 1.20.”
Key Quotes
“The Euro, meanwhile, has staged another of its mini-bounces. 'Mini' is the operative term as these have consistently been too small for those looking to sell into rallies. They also tend to be driven by relative short-term rate moves.”
“With peripheral spreads so range-bound, maybe it's no surprise that the correlation between EUR/USD and the 2-year EU/US rate differential is very high. US rates (and yields along the length of the curve) are drifting back down after Friday's spike, despite yesterday's data. JOLTS job openings and the NFIB small business optimism were both very strong and so the rate move won't go much further.”
“The FOMC next week is now the big event for the market to watch for, and our bias is to look for the strengthening data to turn into a gradual move towards less dovish language, in turn flattening the US yield curve and sending EUR/USD over the edge and down to/through 1.20.”