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EUR/USD risks further downside – Westpac

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 24, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Edinburgh) - Richard Franulovich, Strategist at Westpac, expects the pair to intensify its decline in the next periods.

    Key Quotes

    “US rates have further to go to price in the near certainty of lift-off”.

    “On the Eurozone side the ongoing decline in core yields after the ECB launched sovereign QE in January 2015 suggests EZ yields can continue to fall after next week’s ECB policy announcement”.

    “Relatively healthier trends in the US labour market suggest that the 2yr Bund-Tsy spread if anything has a lot further to fall too. Against all that recent inflation trends and prospective relative growth trends as signaled by financial conditions suggest otherwise”.

    “On balance these forces suggest further Bund-Tsy spread compression in the coming weeks and well into 2015. But, with relatively easier Eurozone financial conditions sowing the seeds of healthier growth outcomes in the Eurozone deeper into 2016, say by Q2, the stage is set for a reversal”.

    “EUR/USD has been trading slavishly in line with the 2yr Bund-Tsy spread and as much as it is a consensus trade the prospect of further yield spread compression should pave the way for further downside for the currency. Those looking for a “dovish Fed hike” and year-end position squaring pressures to produce a bounce in EUR/USD later in December might be disappointed”.
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