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4 Feb 2015
The EUR/USD is not a one way bet - Westpac
FXStreet (Guatemala) - Richard Franulovich, analyst at Westpac Banking Corporation see's the EUR/USD as not simply a one way bet and eyes complications ahead for the greenbacks continued advance.
Key Quotes:
"Core EZ-US 2 yr spreads moved about 100bp in EUR’s favour in 2011H1, coinciding with a rough 15% rally in EUR/USD, from around 1.30 to 1.48. That was completely reversed in 2011H2, with yield spreads moving about 100bp against EUR and EUR trending all the way back down toward 1.30. All the while these trends seem to have closely tracked the evolution of our Eurozone and US data surprise indices."
"There were plenty of other cross currents affecting markets at time – the US lost its AAA sovereign credit rating in Aug 2011 and the Eurozone peripheral debt crisis escalated sharply in 2011H2, with Italy a particular focus. ITL-DEM sovereign spreads blew out to more than 500-600bp."
"But whatever the catalyst, the fact remains that the Eurozone data consistently held up well relative to the US in 2011H1, manifesting itself in a relatively much more hawkish ECB policy stance versus the Fed and a higher EUR/USD while 2011H2 saw precisely the opposite trends play out. Our US and Eurozone surprises indices today are tentatively hinting at a similar potential reversal of fortunes."
"We are not yet minded to shift our constructive USD view versus EUR yet though. ECB QE has yet to begin after all, and looking back at the 2011 analogue the turnaround in EUR/USD from its highs, while seemingly coinciding with a shift in relative data trends against EUR, also coincided with the end of Fed QE2 and an end to ECB rate hikes. At a minimum though a continuation of relatively less weak Eurozone data and some air-pockets in US data trends will complicate the USD's advance."
Key Quotes:
"Core EZ-US 2 yr spreads moved about 100bp in EUR’s favour in 2011H1, coinciding with a rough 15% rally in EUR/USD, from around 1.30 to 1.48. That was completely reversed in 2011H2, with yield spreads moving about 100bp against EUR and EUR trending all the way back down toward 1.30. All the while these trends seem to have closely tracked the evolution of our Eurozone and US data surprise indices."
"There were plenty of other cross currents affecting markets at time – the US lost its AAA sovereign credit rating in Aug 2011 and the Eurozone peripheral debt crisis escalated sharply in 2011H2, with Italy a particular focus. ITL-DEM sovereign spreads blew out to more than 500-600bp."
"But whatever the catalyst, the fact remains that the Eurozone data consistently held up well relative to the US in 2011H1, manifesting itself in a relatively much more hawkish ECB policy stance versus the Fed and a higher EUR/USD while 2011H2 saw precisely the opposite trends play out. Our US and Eurozone surprises indices today are tentatively hinting at a similar potential reversal of fortunes."
"We are not yet minded to shift our constructive USD view versus EUR yet though. ECB QE has yet to begin after all, and looking back at the 2011 analogue the turnaround in EUR/USD from its highs, while seemingly coinciding with a shift in relative data trends against EUR, also coincided with the end of Fed QE2 and an end to ECB rate hikes. At a minimum though a continuation of relatively less weak Eurozone data and some air-pockets in US data trends will complicate the USD's advance."