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27 Aug 2013
Flash: Why not to trade EUR/USD on basis of Syria – BMO Capital Markets
FXstreet.com (New York) - As the tone this morning indicates, whilst the general trend in developing market currencies will be fairly straight forward as tensions could develop into outright international conflict in Syria, suggests Greg Anderson at BMO Capital Markets.
Key quotes
“We need to remember that, broadly speaking, the G10 space has been priced for relative growth and monetary policy divergence for at least the better part of the year – not geopolitical tensions.”
“This is another way of saying that the Q4 2012-Q3 2013 stretch has been one of the most data- and monetary policy-dependent since the Global Financial Crisis swung into acute mode in 2008/2009.”
Moreover, yield-driven risk-off has largely supplanted classic risk-off as means of reading into and reacting to events, but an intense market focus on Syria and the international response could see a return to the former, in which the USD strengthens even as the fall in US yields outpaces that of its core peers on rising UST demand. We would not recommend buying or selling EUR/USD in the very near-term purely on the basis of Syrian headlines.”
Key quotes
“We need to remember that, broadly speaking, the G10 space has been priced for relative growth and monetary policy divergence for at least the better part of the year – not geopolitical tensions.”
“This is another way of saying that the Q4 2012-Q3 2013 stretch has been one of the most data- and monetary policy-dependent since the Global Financial Crisis swung into acute mode in 2008/2009.”
Moreover, yield-driven risk-off has largely supplanted classic risk-off as means of reading into and reacting to events, but an intense market focus on Syria and the international response could see a return to the former, in which the USD strengthens even as the fall in US yields outpaces that of its core peers on rising UST demand. We would not recommend buying or selling EUR/USD in the very near-term purely on the basis of Syrian headlines.”