* Despite EUR weakness, spot’s positive correlation with implied vols, show a market that (correctly) does not fear any major acceleration to the downside. A multitude of short-term regressions suggest EUR/USD should be trading between 1.27 and 1.31. The EUR has suffered technical damage, but any dip to 1.25 – 1.26 should still be bought.
* A worst case scenario where US politicians take the US over the fiscal cliff is unlikely to prove USD positive in a lasting way, either because it is a temporary negotiating ploy that forces a settlement without dramatic fiscal drag, or much less likely, because fiscal drag is so large it encourages an unprecedented expansion in the Fed’s balance sheet.
Click here to read the full report: Daily Forex 11.13.12
Deutsche Bank