1. The Greece Debt crisis induced an agGressive 3000pip+ sell-off in just 6m (-22%). As the crisis "resolved" EUR$ however failed to retrace any of its losses.
- Instead EUR$ looked to adopt these new crisis lows as what has become a long-run trading range - the likely explanation would be that future FED/ ECB monpol divergence was priced "early", hence we have maintained the crissi lows.
2. Going forward this explains why EUR$ hasnt made more downside declines from 1.10 despite added Fed tightening and ECB easing - and could imply that we will remain tightly rangebound here (1.05-1.15) as future ECB/ FED monpol divergence is likely to taper off as ECB easing comes to an end, which will potentially off-set the inevitable added FED hikes.
3. Though my bias would still be lower from EUR$ as Fed hikes, and the steepness of their hike cycle is likely to become more aggressive, whereas the ECB easing fade off-set is arguably less of a bullish factor than hikes are a bearish factor.
- HOWEVER, once again it is uncertain how much forward ECB/ FED monpol pricing has been done already in this 3000pip move lower, it could be that until fed funds reaches 2% (for example) that the divergence isnt enough to justify more than the 3000pip move lower that we have seen. It may take a much more aggressive steepening in monpol divergence between ECB/ FED (than what has been generally expected) to drive EUR$ to parity, the extent to which I do not know..
- Also the ECBs easing cycle, and whether it comes to the end (or is extended further) may possibly play a big role on the degree that this 1.10 equilibrium holds. ECB adding QE another 6m out to march 2017 and 240bn would only weigh in the bears favour, though once again the effect may be muted somewhat due to the above.
Any questions or other ideas please comment below!
Will GBPJPY hit 1.5 this year if Japan pumps QE money?
Everybody is talking of short covering happening for GBP.
What role does JPY play in short covering trade?
Is it based on fundamentals or the market makers attempting to square books and offset losses because of accepting shorts.
Marc_lux
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I agree with all those factors but I would add the Union's outlook for "European project" another factor. Consensus on a post Brexit agenda and the potential moving of firms, particularly Banks and Exchange BATS, could have an effect on the pair. Maybe there'll be more fiscal stimulus from the Commission too (Juncker plan II? --> IT, PT, FR, ES, GR interests). I stay very undecided, although technical analysis on IDC data (post ERM) suggests a trend channel that talks a bullish language with an apparent accumulation phase (this range trading) for EU. Rate hike in the US being talked over and over again and Yellen waiting for numbers that don't appear, I wouldn't count on it for the short term as well as any end to ECB easing.
ji910071
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will Euro touch 1.20 by next April or not?
If Fed defers interest rate increases, will Euro touch 1.18 by this year-end or not?
What do you think?
QuantumLogicTrading
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If the fed doesnt hike this ear EUR$ to 1.18 i would bet on, especially as i dont think the ECB will extend their QE and definitely wont touch their interest rates any more.
Everybody is talking of short covering happening for GBP.
What role does JPY play in short covering trade?
Is it based on fundamentals or the market makers attempting to square books and offset losses because of accepting shorts.