However, he writes, “This isn’t ‘good news’ for the Euro Zone economy and it increases the divergence between the Euro (trending higher on the back of decreased strains in the financial system and de facto tighter ECB policy) and the underlying economy, which isn’t in good shape. The currency is not a measure of relative national virility or economic growth.”
He comments that it is supported by the fact that the ECB´s balance sheet is falling while others are growing, and global investors are buying high yielding Euro assets after a long period of shunning them. He feels that in the long run, the economic divergence between Europe and the US will be reflected in a weaker EUR/USD rate, but not now.
He finishes by writing, “If you really want to wade in early, it would be safer/wiser to sell GBP/USD, given that Fed and BOE policies are more aligned. But the risk is that EUR/USD breaks 1.35 and heads towards 1.40, taking EUR/GBP towards 0.88 and leaving GBP/USD in a range.”