Yann Quelenn
Swissquote Bank Ltd
Today has been released the current account of the balance of payments for July which is a good metric to measure any change in regards to the ECB monetary policy. It helps us to measure any potential capital inflow or outflow. The July data has seen an increase of the current account balance to €8.625billion from €5.257 billion. Inflows towards the Eurozone are increasing at a faster pace.
Those inflows are mostly due because of strong market expectations that the ECB will starts tightening its monetary policy by announcing a reduction of its asset purchase program at its next meeting. The ECB monetary policy has largely driven, over the past few years, money towards the global bonds market which has risen significantly. Any further tapering would likely push investors to unwind their foreign assets position and drive money back to the Eurozone.
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As a result, we believe that upside pressures on the Eurodollar pair are very likely to continue despite the rate differential between the US and the EU is rising, in particular the front-end of the US yield curve. Anyway the rate differential is not a great metric for estimating future currency demand. We keep on considering that the state of the US economy is overestimated and that investors are keen to unwind their long dollar position. A Eurodollar at 1.23 represents a decent medium-term target.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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