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8 Apr 2013
Forex Flash: EUR/USD drifting towards 1.3085 - Societe Generale
FXstreet.com (Barcelona) - Sebastien Galy, Senior FX Strategist at Societe Generale notes that the wave of investment from Japanese investors seems largely gone by if price action is of any guide.
However, what he feels may continue is JPY replacement of EUR as a funding currency, creating a short covering that boosts EUR. Running his models, he finds that 1.3085 corresponds to the 80% quantile (20% chance the market is more optimistic on EUR), giving the market a natural target, before grinding lower. He writes, “The model is based on a 2 year swap spread and the spread between 2Y Spanish Bonds (OBL) with German Bunds.” Elsewhere he sees that EUR/CHF is a buy at current levels given limited downside.
However, what he feels may continue is JPY replacement of EUR as a funding currency, creating a short covering that boosts EUR. Running his models, he finds that 1.3085 corresponds to the 80% quantile (20% chance the market is more optimistic on EUR), giving the market a natural target, before grinding lower. He writes, “The model is based on a 2 year swap spread and the spread between 2Y Spanish Bonds (OBL) with German Bunds.” Elsewhere he sees that EUR/CHF is a buy at current levels given limited downside.