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5 May 2015
Sell EUR/USD when the Treasury/Bund tightening stops – SG
FXStreet (Barcelona) - Kit Juckes of Societe Generale, shares 3 key reasons for holding back on shorting the EUR/USD pair.
Key Quotes
“The 9-day EUR/USD rsi which has flipped from dramatically oversold, to dramatically overbought and is now trading down and throwing up a sell signal, at least to my very ill-edicated eyes. I don't want to sell EUR/USD until 1) the Treasury/Bund spread has stopped tightening, 2) until the EUR shorts have decreased in size the way the JPY ones havem and 3) until after Friday's NFP. But... a signal's a signal.”
“Over the last week, 10year Treasury yields have risen by 14bp, but that is dwarfed by a 29bp rise in German Bunds. The 10yr Treasury/Bund spread has tightened by over 20bp since mid-March, and over the last couple of months has correlated pretty closely with EUR/USD. For how long can Bund yields rise faster than Treasuries?”
“European inflation bottoming-out and the change in the Greek negotiating team at debt talks may have been catalysts for the sell-off, but the real driver was that yields fell too far, too fast and position-squaring in thin markets has magnified what looks far more like a correction than a major trend change.”
“The IMF warned yesterday that Greece is missing the budget targets in the bailout programme by a growing distance, and while that may be offset by optimism from the EC when they release their spring economic forecast this morning, we will look for this sell-off to run out of steam within the next week.”
Key Quotes
“The 9-day EUR/USD rsi which has flipped from dramatically oversold, to dramatically overbought and is now trading down and throwing up a sell signal, at least to my very ill-edicated eyes. I don't want to sell EUR/USD until 1) the Treasury/Bund spread has stopped tightening, 2) until the EUR shorts have decreased in size the way the JPY ones havem and 3) until after Friday's NFP. But... a signal's a signal.”
“Over the last week, 10year Treasury yields have risen by 14bp, but that is dwarfed by a 29bp rise in German Bunds. The 10yr Treasury/Bund spread has tightened by over 20bp since mid-March, and over the last couple of months has correlated pretty closely with EUR/USD. For how long can Bund yields rise faster than Treasuries?”
“European inflation bottoming-out and the change in the Greek negotiating team at debt talks may have been catalysts for the sell-off, but the real driver was that yields fell too far, too fast and position-squaring in thin markets has magnified what looks far more like a correction than a major trend change.”
“The IMF warned yesterday that Greece is missing the budget targets in the bailout programme by a growing distance, and while that may be offset by optimism from the EC when they release their spring economic forecast this morning, we will look for this sell-off to run out of steam within the next week.”