How much damage will the US data do to the EUR and carry? – Deutsche Bank

In the big picture the latest US data fits with the medium-term view that EUR/USD’s range has likely shifted from 1.05-1.15, to 1.10-1.20, rather than trending strongly higher, according to Alan Ruskin, Macro Strategist at Deutsche Bank.

Key Quotes

“2015 and 2016 EUR/USD spikes at 1.1714 and 1.1616 that were resistance when the EUR was going up, are now important support levels.”

“Short-term pent up USD demand from the last few months, will counter the post-French election recovery from underweight EUR allocations.”

“EUR/USD correlations with rate spreads (10y US German) should increase, but it is doubtful that EUR will trade where spreads suggests it should (~1.12) without the US fiscal story re-emerging. 1.15-1.19 is a more likely near-term range.”  

“Near-term EUR/CHF is likely ‘the tail’ that tells the health of EUR/USD ‘dog’.”

“Outlier? After the summer recess, the market will likely be more receptive to stories about any US fiscal expansion that could have profound monetary policy and political effects.”  

“FX carry has been more tightly correlated with the EUR than the Fed terminal rate. The Fed terminal rate will likely go up less than it should - if only in the short-term.”