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28 Aug 2013
Flash: EUR/USD not the best option for geopolitical risk trade - BMO Capital Markets
FXstreet.com (Barcelona) - Stephen Gallo, European Head of Currency Strategy at BMO Capital Markets notes that trading EUR/USD purely on the basis of rising geopolitical tensions related to Syria and the MENA region will be difficult for the time being as the pair reflects a build-up of macro economic views.
Key Quotes
“A close below the 200-day moving average in EUR/CHF (currently 1.2275) should be an invitation to trade the pair into the 1.2050-1.2100 range if “classic risk off” persists and global equity markets continue to tumble, whilst significant equity market rallies could very easily see the pair trade back at 1.2350 and higher.”
“Interest rate spreads, Euro Area/US monetary policy & growth divergence, weaker energy & precious metals prices, bets of medium-term USD strength through optionality and EUR repatriation have all been determinants of recent price action in EUR/USD – not “risk-on/risk-off” or geopolitical headlines.”
“If US Treasury prices need to reflect higher “geopolitical premia”, US rate spreads will need to adjust first, and this may reduce EUR/USD downside potential; once that adjustment is complete, we would expect EUR/USD to track EUR/CHF lower as a number of forces collide to force a general bid in the USD.”
Key Quotes
“A close below the 200-day moving average in EUR/CHF (currently 1.2275) should be an invitation to trade the pair into the 1.2050-1.2100 range if “classic risk off” persists and global equity markets continue to tumble, whilst significant equity market rallies could very easily see the pair trade back at 1.2350 and higher.”
“Interest rate spreads, Euro Area/US monetary policy & growth divergence, weaker energy & precious metals prices, bets of medium-term USD strength through optionality and EUR repatriation have all been determinants of recent price action in EUR/USD – not “risk-on/risk-off” or geopolitical headlines.”
“If US Treasury prices need to reflect higher “geopolitical premia”, US rate spreads will need to adjust first, and this may reduce EUR/USD downside potential; once that adjustment is complete, we would expect EUR/USD to track EUR/CHF lower as a number of forces collide to force a general bid in the USD.”