EUR/USD: What’s In The Driving Seat As Correlations With Relative Rates/Yields Have broken Down – SocGen

May 24,2019 23:14   Source:Forex Crunch

EUR/USD dipped to a new 2019 low only to bounce back. What’s next?

Here is their view, courtesy of eFXdata:

Societe Generale Research discusses EUR/USD outlook and notes that as EUR/USD correlations with relative rates/yields have broken down,it’s all about relative growth now. 
“When EUR/USD first started trading, it correlated with almost nothing, falling despite favourable growth and rate differentials moved in its favour. Structural and valuation concerns dominated but in due course, it settled down and correlated well with relative rates for a decade before negative rates and central bank balance sheet explosion made long-term yield differentials better indicators of where EUR/USD was going in 2015-2016,” SocGen notes.

“Since then, what has really mattered is how expectations of growth have shifted. In 2017, despite rate differentials only briefly moving to support it, the euro rallied on expectations of ECB tapering and of continued strong growth. Partly because those growth expectations were unrealistic, 2018 saw disappointment set in at the same time US growth expectations were repeatedly revised higher. That trend in relative growth expectations has continued pretty much unchecked for nearly 18 months, during which time EUR/USD has trundled lower,”SocGen adds.

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The post EUR/USD: What’s In The Driving Seat As Correlations With Relative Rates/Yields Have broken Down – SocGen appeared first on Forex Crunch.



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