EUR/USD: Quieter Times Ahead?; Important Levels To Watch - SocGen

Focus of the day:

"...At the risk of using an out-of-date analytical tool to draw spurious conclusions, I would observe that the euro is about 6 ½ figures lower than the model suggests it ‘should’ be, and all other things being equal, that is the same as saying that the market is pricing EUR/USD off 2-year US interest rates that are about 60bp higher than they are now.

Or, to put it another way, the market is priced for 2-year Note yields a little above 1%, a level they would reach if the Fed raised rates to 0.5%. [The] FOMC left US short rate futures trading well inside their January range and still priced for a rate hike.

So maybe the way to think about EUR/USD is that we have priced in ECB QE and the latest rate cut, and at least one Fed rate hike with a high degree of confidence.

From here, we may well see a period of consolidation until something changes. A significant reversal back to 1.20 would require Fed rate hikes to be put on the back-burner, or a significant improvement in European data. Otherwise, EUR/USD 1.10-1.15 may hold for a bit and we can turn our attention elsewhere, unless the blow-out in Greek asset prices spills over to the rest of the Euro area."

Kit Juckes, Societe Generale

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