EUR/USD: Driven by the politics - Westpac

Catalonia rumbles on in the background, with Spanish equities sharply underperforming the Eurozone benchmark since the early Sep announcement of the referendum, notes Sean Callow, Research Analyst at Westpac. But the common assumption seems to be that there will be no actual independence and thus no strong case to sell the euro, he further adds.

Key Quotes

“There of course are other reasons to sell the euro. As noted on p2, yield spreads are moving significantly against EUR/USD, with ECB balance sheet expansion to continue deep into 2018.”

“The euro does enjoy a strong current account position, but with risk appetite elevated, portfolio outflows from the Eurozone should be substantial.”

“Yield differentials alone suggest EUR/USD could test the 100dma around 1.1650, assuming that the ECB on Thu confirms QE will continue to at least Sep 2018.”