EUR USD (1.3025) Optimism about the US economy has sparked a rise in the US Treasury yields, a rally in the stock market and a higher dollar index. This is in sharp contrast to a just a week ago when a Wall Street Journal article dwelling on the possible new options the Fed may employ for easing had created the impression that something would have to be done to address the looming slowdown. Indeed bond investors who just a week ago were loath to indulge in bond selling, are now almost feeling compelled to rectify their perceptions. So although, the Fed has refrained from communicating any broad change in the policy implications (even on Twitter), the markets are having to effect an about turn in the perceptions. Investors, it seems, are now more ready to believe in the ‘green shoots’ in the US economy. In a matter of days, it seems they have suddenly become optimistic about the prospects of the US economy. The benign impact of the Greek default and the much improved condition of the US banks as revealed in the stress tests have undoubtedly contributed to the re-evaluation of beliefs but as usual it is the price changes that have been the most persuasive. In contrast to just a few days ago, the current sentiment it seems is more or less at the expense of the euro. The downside risks to the euro stretches to 1.2930 and below that possibly to 1.2660. The first sign of stabilisation can only be expected beyond 1.3225.
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Deutsche Bank