24 Mar 2014
Is EUR/USD at a turning point? - Danske Bank
FXStreet (Barcelona) - Lars Christensen, Chief Analyst at Danske Bank comments that last week EUR/USD dropped substantially and the week also offered some indications that a turning point in EUR/USD could be imminent.
Key Quotes
“First of all, markets were caught by surprise by some hawkish messages from Fed’s Yellen following the FOMC meeting. In addition, the IMM data released last Friday showed the largest build in non-commercial net EUR-longs since September 2013. Speculators have not been this long the single currency since the beginning of November 2013 and while some long EUR positions have been slashed following the FOMC meeting (note that the IMM data were collected prior to the FOMC meeting), positioning data suggest that support to the euro could soon fade as further build-up in long EUR positions might lose momentum.”
“On Friday the ECB, on the other hand, announced another big LTRO repayment and there is a risk that pressure on excess liquidity could increase in the coming weeks putting upward pressure on Eonia rates. While higher Eonia rates are likely to support the euro in the very near term, a worsening of the liquidity situation could force the ECB to ease monetary policy already in April. This could cap EUR/USD sooner than we currently estimate (we target 1.42 in 3M).”
“However, since liquidity will be the trigger, an end to SMP sterilisation is probably the most likely tool that the ECB would use in this case. While an end to SMP sterilisation would have an immediate impact on excess liquidity, it would have a minor negative effect on Eonia rates and on the euro. In addition, we expect the Fed to try to tone down expectations after the market’s reaction to the FOMC statement last week and given a lack of EUR-negative ECB action we still see risks skewed to the upside in EUR/USD and look for the pair to test the 140-level in the coming months.”
Key Quotes
“First of all, markets were caught by surprise by some hawkish messages from Fed’s Yellen following the FOMC meeting. In addition, the IMM data released last Friday showed the largest build in non-commercial net EUR-longs since September 2013. Speculators have not been this long the single currency since the beginning of November 2013 and while some long EUR positions have been slashed following the FOMC meeting (note that the IMM data were collected prior to the FOMC meeting), positioning data suggest that support to the euro could soon fade as further build-up in long EUR positions might lose momentum.”
“On Friday the ECB, on the other hand, announced another big LTRO repayment and there is a risk that pressure on excess liquidity could increase in the coming weeks putting upward pressure on Eonia rates. While higher Eonia rates are likely to support the euro in the very near term, a worsening of the liquidity situation could force the ECB to ease monetary policy already in April. This could cap EUR/USD sooner than we currently estimate (we target 1.42 in 3M).”
“However, since liquidity will be the trigger, an end to SMP sterilisation is probably the most likely tool that the ECB would use in this case. While an end to SMP sterilisation would have an immediate impact on excess liquidity, it would have a minor negative effect on Eonia rates and on the euro. In addition, we expect the Fed to try to tone down expectations after the market’s reaction to the FOMC statement last week and given a lack of EUR-negative ECB action we still see risks skewed to the upside in EUR/USD and look for the pair to test the 140-level in the coming months.”