EURUSD started addtional movement targeting 1.08

2018.8.19
EURUSD
Closed at 1.1409 (+0.18%) Target to 1.0800 (-5.34%)
Indices
10y US T-Note 2.8605% (-0.0055%)
10y German G-Bund 0.305% (-0.015%)
S&P500 2850.13 (+0.33%)
EUROSTOXX50 3,372.94 (-0.14%)
Dollar Index 96.101 (-0.56%)

1. What we need to focus on is strength of USD. Eventually, dollar index pierced band of 93-95. I have kept saying there are several reasons why USD is showing its strength against other currencies, like the strongest fundamental of US economy compared with other regions, more tighten policy from Fed than those from ECB or BOE, or USD’s recovery of status as the safest assets over Japanese Yen or Gold. The factors which could reverse the trend aren’t coming up. Disappointments for economic indices, weak stock market and political problems in Eurozone are being continued. I believe that dollar index will reach to 100 in this year and EUR got a weight of 57.4% in the index.

2. Turkish issue would remain in the markets. As many analysts have suggested, I also believe that Turkish issue isn’t a big problem. Turkey isn’t included in European Union, and Turkish lira had recovered its plunge with measures of the authorities. USDTRY reached to about 6 at this Friday from more than 7 at this Monday. Whether the issue is a big problem or not, concerns over the issue would remain in the markets for a while. The problem for Europe from the turmoil is exposure of its banks to the country. Unlike other industries, European banks could get real loss from the turmoil. Share-prices of the biggest banks in the regions like BBVA, BNP Paribas, UniCredit are facing the questions in the markets. According to FT, the exposures are $100bn for Spanish, $40bn for French, $40bn for British and $20bn for Italy.

3. Strong German Bond isn’t helping to narrow yield-gap between two markets. It’s one fundamental issue – market yields. German yields are even stronger than I expected. The 10y bund touched 0.3%. As I suggested in report about 10y German Government Bund at July 30, German FI market will need too much time to recover enough high level to replace US yield unlike research analysts in brokerage expected. For a while, to get yield more than 2.5% with EUR, the investors got to go into problematic markets like Italy or Greece. Yields in the overall zone are still too low to attract investors: In standards of 10y, France 0.667%, Spain 1.449%, Netherlands 0.425%, Portugal 1.855% at Aug 17. It means European institutional players don’t need to change their USD to EUR. But the reverse would be true. The sluggish European stock market and the bullish US stock market are other reasons to avoid having EUR for the investors.

4. I set my target for EURUSD to 1.08 According to some models which calculate exchange rates based on economic fundamental, EURUSD should be much higher than now: should be 1.25. But the markets are ignoring some macroeconomic factors which could be interpreted as favoring EUR like high inflation of the US. Value of USD overcame its band eventually, so I believe EURUSD is targeting 1.08.

Mr. Banker, http://markety.tistory.com

 

EURUSD in August 19, 2018.pdf