‘Patience Is A Virtue’, SocGen says
As EUR/USD skips towards 1.14, the fact that it’s doing so despite huge outflows of long-term capital and wholesale abandon of European bonds by foreigners, doesn’t really help. The Euro is going up despite the ECB.
The yield-spread-based model of EUR/USD I’ve been using for just over a year now suggests that EUR/USD a ‘a bit’ high, but it also suggests it’s going in the right direction. My old ‘baby model’ based on vol, peripheral European spreads and 2-year rate differentials, is so out of touch it gets its own axis, but even so, it too points upwards. Relative rate and yield trends are trumping the balance of payments and the effects of QE/ECB.
