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13 Sep 2013
Flash: EUR/USD shorts favored – TD Securities
FXstreet.com (Lisbon) - Since late August, however, EUR/USD has ignored the widening out in the short-term cash bond spread against the EUR—the spread has gained a meaningful (by recent standards of the range) 19bps of yield in the USD’s favor in a short space of time, notes the TD Securities Team.
Key quotes
“That would, ordinarily mean a somewhat lower EUR/USD exchange rate than we have right now. Our simple regression model of spreads/spot suggests that, on current spread form, EUR/USD should be trading below 1.30. Spot seems to be defying gravity at current levels.”
“We think that the spot market will eventually catch up with spreads—rather than spreads reverting higher, in line with current spot levels. The Fed may introduce a taper-lite and enhanced forward guidance which may dampen short-term yields somewhat but the ECB retains a dovish bias also policy makers remain very cautious about the outlook – we favor EUR/USD shorts.”
Key quotes
“That would, ordinarily mean a somewhat lower EUR/USD exchange rate than we have right now. Our simple regression model of spreads/spot suggests that, on current spread form, EUR/USD should be trading below 1.30. Spot seems to be defying gravity at current levels.”
“We think that the spot market will eventually catch up with spreads—rather than spreads reverting higher, in line with current spot levels. The Fed may introduce a taper-lite and enhanced forward guidance which may dampen short-term yields somewhat but the ECB retains a dovish bias also policy makers remain very cautious about the outlook – we favor EUR/USD shorts.”