13 Nov 2013
Flash: EUR/USD on its way to 1.20, slowly... - Societe Generale
FXstreet.com (Barcelona) - Kit Juckes, Global Head of Currency Strategy at Societe Generale comments that finally, because the markets were quiet yesterday, he updated model projections for EUR/USD.
Key Quotes
“This model is simple, and based on relative 2-year rates and risk aversion. If I plug in the rate differentials implied for forward rates, (he sees), EUR/USD heading towards 1.25 over the next 2 years.”
“I don’t look for thrills or spills but sell rallies. To get to 1.20, I need the rate differential to widen faster than the swap curves predict. The forward curve prices a 60bp US/Euro 2yr rate differential in 2 years, and I think it can be twice that. which basically happens if Euro 2yr rates in 2years’ time are a fair bit lower than the 1.27% that is currently priced (current 2-year swap rates are at 0.46, and I personally don’t see a lot of reason for the ECB to be tightening in the next couple of years).”
Key Quotes
“This model is simple, and based on relative 2-year rates and risk aversion. If I plug in the rate differentials implied for forward rates, (he sees), EUR/USD heading towards 1.25 over the next 2 years.”
“I don’t look for thrills or spills but sell rallies. To get to 1.20, I need the rate differential to widen faster than the swap curves predict. The forward curve prices a 60bp US/Euro 2yr rate differential in 2 years, and I think it can be twice that. which basically happens if Euro 2yr rates in 2years’ time are a fair bit lower than the 1.27% that is currently priced (current 2-year swap rates are at 0.46, and I personally don’t see a lot of reason for the ECB to be tightening in the next couple of years).”