Back in early May we noted [3] that the 'strength' of EURUSD (at the time around 1.30) implied an expectation of a $700bn Fed NEW QE is on its way very soon - in fact, as recent developments by the two central banks have demonstrated, it was the ECB that added assets (and liabilities) over the past two months, even as the Fed has shed some excess weight. In those following six weeks, EURUSD has fallen nearly 1000pips in our favor as the FX market has finally given up hope of imminent printing (with only the most addicted of markets - US equities - left 'believing'). As Fed and ECB balance sheets have shifted in the last few weeks, so the new 'QE-less' target for EURUSD is around 1.1850 (200 pips lower), though we would suggest taking some healthy profits to leave a runner.
The ratio of the Fed and ECB balance sheets compared to the EURUSD exchange rate...
[4]
Chart: Bloomberg