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As for the euro, EUR/USD is stuck in a broad range that doesn’t look to me anywhere near ready to break. In the spirit of looking at real yields, I’ve plotted EUR/USD against the Bund/Treasury real yield differential, currently 104bp.
US real yields probably need to rise by 50bp or so to get EUR/USD back to 1.05, which seems very unlikely any time soon. If that doesn’t happen, it’s up to the ECB to drive real yields lower independently. Meanwhile, a break through 1.16 for EUR/USD needs the real yield spread to narrow by about 25bp. That would need 10-year nominal Treasury yields to fall comfortably below 1.5%. I think a 1.1660 1.06 range holds.
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That’s a fairly wide range, but it’s captured nearly all the price action since last February, and the moves within that range are likely to depend on the ebb and flow of bond market sentiment and the vagaries of each and every economic statistic.
We don’t intend to publish any directional EUR/USD ideas until there’s a chance of a clearer trend emerging.
