Macrodesiac

EURUSD: History doesn't repeat, but it rhymes

FX:EURUSD   Euro / U.S. Dollar
Well, well, well...

Interesting chart we have here.

If you're a keen central bank watcher like we are at Macrodesiac, then you'll have certain comments signposted at certain dates and prices.

The first one to take note of is Draghi's comment back in July 2012...

WHATEVER IT TAKES

This phrase is famed for 'saving' the euro back then during the sovereign debt crisis...

And we saw the euro rally from lows of ~1.20, all the way up to ~1. 40 ...

But it died a death again.

More recently, we have Mdme. Lagarde's famous phrase...

WE ARE NOT HERE TO CLOSE SPREADS

This was back in March 2020 at the start of the Covid Crisis where Eurozone sovereign debt yields were widening massively (specifically Italian BTPs vs German Bunds).

Interestingly, we are seeing these spreads widening at the moment...


This puts the ECB in a bit of a conundrum, since they are most probably looking to end their asset purchase programme in June and crack on with hiking...

The problem here is that the market, we don't think, is likely to take the announcement of tightening as a BAD sign for the euro , when if you were looking at yield differentials, you might say that euro strength should come into play since you can earn greater interest on it.

We're essentially looking at the euro doing the OPPOSITE of what happened after Draghi's and Lagarde's comments at said prices.

We are therefore not unconvinced that the euro could face a similar fate as it did in the years post Draghi, where it fell from the high of ~1. 40 to the low at 1.05, which in current context, could mean a fall in EURUSD to 0.90.


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Here's a lil taster: https://www.macrodesiac.com/the-actual-impact-of-qe-interest-rate-changes/
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