No New Punchbowl Promises Send EUR Ever Closer To Fair Value
EURUSD has tumbled hard following the FOMC minutes as the much-hoped for 'we promise to print USD to infinity at the next meeting no matter what we see' phrase was missing. Two months ago, when the EURUSD was at 1.30, we asked if a 1000 pip move lower, based on relative central bank balance sheets, is in the cards. Today, we are 80% of the way there, with the Euro having tumbled 800 pips against the dollar as NEW QE gets priced further and further out - now implying a 20% likelihood of getting a new USD printing from the Fed within the next 3 months.
and perhaps more interesting, the ebulience in the Sovereign risk market of the last few days seems directly opposed to the weakness of the EUR; who is right? We hesitate to guess but for sure there is room for convergence to some reality.