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Apr 11 - 11:55 AM

EUR/USD - COMMENT-A Little Divergence Won't Change EUR/USD Much

By Jeremy Boulton  —  Apr 11 - 09:45 AM

The small amount of interest rate divergence that's expected this year will not change EUR/USD much, and the greater split in policies required to really move the pair is highly unlikely.

Expected changes in rate differentials weighing EUR/USD are shifting toward 2 percent from 1.5 percent.
EUR/USD rose from close to 0.9500 toward 1.1300 regardless of a the prior divide in interest rates that was supporting the greenback, and has spent a long time largely within 1.05-1.10.

This pair rallied despite rates, and did so while traders were betting heavily on a rise.
With bullish bets slashed, and a short position likely to evolve given some big downside calls, EUR/USD may be better supported.

There is little chance that ECB policy diverges to a great degree with the Fed.
Most central banks have long followed the U.S. central bank and given the euro zone's trading ties with the United States, a split with tradition by a conservative institution like the ECB is most unlikely.

Without a big division, the best bearish traders might hope for is the gradual undermining effect that interest rates may have which could push EUR/USD toward the lower end of well trodden ranges.

Option vols have barely risen this week, and their low level suggests no big movement in any direction, anytime soon.
Should BOJ intervene to support the yen that could soon change with EUR/USD rising swiftly.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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