FX Week 3 November 2013

EUR gains unravel


The end of last week saw a sharp reversal in EUR/USD undoing all of the strength it received in the past fortnight on the back of the US October government shutdown. The move down followed a less dovish tone taken by the Fed following its latest FOMC meeting, but more importantly it reflected a sharp deterioration in Eurozone economic data, with inflation, unemployment and sales data in the single currency area all disappointing markedly and putting another ECB rate cut at this week’s Council meeting into play. Increasingly investors have been viewing EUR/USD purely through the prism of the US economy alone, ignoring the broader themes and risks associated with the Eurozone. These are concerns and risks which we have we have frequently highlighted, however, despite the EUR’s rally, and having closed last week at 1.3486 EUR/USD is now back within striking distance of our one-month forecast of 1.34.

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