EUR USD (1.3335) Over the past week more volatility has appeared in the mood of market participants than in the actual FX rate. Although spot prices are unchanged on a week ago, each day small moves are explained by large macro themes. For example, graphic illustrations of how economic decline in the periphery would drag down the eurozone relative to the US accompanied a dip below $1.33. But then an EU finance ministers’ agreement over a higher firewall, early LTRO paybacks planned by several large banks, and money flowing into the eurozone from US money market funds, were advanced as explanations for a subsequent euro recovery of less than one percent. Similarly, yesterday, a weaker eurozone PMI and high unemployment in the zone composed the gloomy backdrop to a slight price drop during the European morning, but the market still settled unchanged despite improved US manufacturing data later in the session. The laundry list of macro themes could seemingly affect the exchange rate, yet the euro barely moves. Furthermore, we note these big mood changes lag slightly behind, exemplifying how the price is making the sentiment, not vice versa. For the moment, we maintain our current bullish strategy, whose unambitious price target remains at 1.3410. The downside risk-limit is unchanged at 1.3230.
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Deutsche Bank