EU elections threw up headlines as UKIP and the Front National scored notable gains. But financial markets were prepared for these results and a strong showing for Matteo Renzi’s Democratic Party, as well as Angela Merkel’s CDU, helped spur the Euro to gains, while equity markets rallied and peripheral bond spreads (notably BTPs) tightened…
I have updated my simple EUR/USD with projections based on the forward interest rate and curve, and the simplistic assumption that that peripheral spreads are range-bound from here. The upshot is that EUR/USD ‘should’ end 2014 at 1.3230, a little below current levels, getting to 1.25 in 2014 and 1.20 in 2016.
This week’s focus in Europe will be on further comment from ECB officials (though Mr Draghi yesterday seemed clear enough: They will ease in at the June 5 council meeting).
The last two ECB rate cuts saw the Euro fall briefly and then bounce. This week’s bounce in EUR/USD probably can’t go much further, and is a chance to sell.”