Back
4 Jun 2015
EUR/USD in thrall to rising Bund yields – SG
FXStreet (Barcelona) - Kit Juckes of Societe Generale, mentions that EUR/USD has continued to track bund yields which was seen in yesterday’s climb after Draghi’s comments provided a boost to bunds.
Key Quotes
“Mr Draghi effectively told markets to get used to increased bond yield volatility, which is a natural result of super-low interest rates. We could argue that it's also a by-product of QE but he obviously felt no need to reiterate Benoit Coeure's comments about front-loading ECB bond-buying, or do anything else to encourage buyers back in. So Bund yields spiked.”
“EUR/USD has been following the Treasury/Bund spread slavishly for the last three months (the Euro low came the day after the wides were seen in the yield spread, the mid-May peak at 1.1470 came when the spread had tightened in by 40bp and was followed by M Coeure's comments).”
“With 10yr Bund yields opening the day at 93bp, the spread is nearly 10bp tighter than when EUR/USD reached its most recent peak.”
“From a chart perspective, 1.1315 is the next key level, and given yield spread that point to a further bounce, I suspect that any break of that level would act as a trigger for a further spike. My heart wants to go short against 1.1315, and my head wants to hide under a duvet.”
“With little major economic data (claims in the US, nothing in the EA) we will watch comments about the Greek talks, though so far, markets don't seem spooked by the likelihood a final agreement won't be reached for a few more days.”
Key Quotes
“Mr Draghi effectively told markets to get used to increased bond yield volatility, which is a natural result of super-low interest rates. We could argue that it's also a by-product of QE but he obviously felt no need to reiterate Benoit Coeure's comments about front-loading ECB bond-buying, or do anything else to encourage buyers back in. So Bund yields spiked.”
“EUR/USD has been following the Treasury/Bund spread slavishly for the last three months (the Euro low came the day after the wides were seen in the yield spread, the mid-May peak at 1.1470 came when the spread had tightened in by 40bp and was followed by M Coeure's comments).”
“With 10yr Bund yields opening the day at 93bp, the spread is nearly 10bp tighter than when EUR/USD reached its most recent peak.”
“From a chart perspective, 1.1315 is the next key level, and given yield spread that point to a further bounce, I suspect that any break of that level would act as a trigger for a further spike. My heart wants to go short against 1.1315, and my head wants to hide under a duvet.”
“With little major economic data (claims in the US, nothing in the EA) we will watch comments about the Greek talks, though so far, markets don't seem spooked by the likelihood a final agreement won't be reached for a few more days.”