24 Oct 2013
Watch correlation between higher EUR and ECB rhetoric to talk it down
FXstreet.com (Barcelona) - Rhetoric to talk the EUR lower could intensify in the coming weeks/months, that is the conclusion drawn by Strategists at HSBC, as the EUR/USD recently hit a fresh year high on the back of a disappointing NFP.
HSBC warning
According to HSBC: "This could come in many forms, be it rhetoric, a rate cut or renewed liquidity injections by the ECB, and stifling the EUR’s rise will be a key part of the strategy." Coincidentally, ECB President Mario Draghi said earlier today ECB officials ready to fail banks in next year's stress tests.
HSBC adds: ""The Real Effective Exchange Rate (REER) of the EUR has appreciated by an unhelpful 9% in the last year. This is the potential Achilles heel, and will demand a policy response. This could come in many forms, be it rhetoric, a rate cut or renewed liquidity injections by the ECB, and stifling the EUR’s rise will be a key part of the strategy."
Start factoring in risk headlines in EUR in coming months
While the EUR/USD seems to have further room to the upside, from both, a technical and fundamental perspective, traders should not forget that there will be an increasingly strong correlation between a higher EUR value and the rhetoric used by European policy-makers to try to decrease the appeal towards the single currency.
HSBC warning
According to HSBC: "This could come in many forms, be it rhetoric, a rate cut or renewed liquidity injections by the ECB, and stifling the EUR’s rise will be a key part of the strategy." Coincidentally, ECB President Mario Draghi said earlier today ECB officials ready to fail banks in next year's stress tests.
HSBC adds: ""The Real Effective Exchange Rate (REER) of the EUR has appreciated by an unhelpful 9% in the last year. This is the potential Achilles heel, and will demand a policy response. This could come in many forms, be it rhetoric, a rate cut or renewed liquidity injections by the ECB, and stifling the EUR’s rise will be a key part of the strategy."
Start factoring in risk headlines in EUR in coming months
While the EUR/USD seems to have further room to the upside, from both, a technical and fundamental perspective, traders should not forget that there will be an increasingly strong correlation between a higher EUR value and the rhetoric used by European policy-makers to try to decrease the appeal towards the single currency.