EUR/USD: Valuation out of whack, rate adjustment to 1.17 eyed

2018年12月10日

As the macro valuations stand, there is only one way I am betting this market to go, and that’s up. Go back any time in history, and you will realize that whenever we’ve had such a deviation between the pricing of the pair and the true value of the pair based on yields spreads, it almost always re-calibrates in favor of the yield spread, especially in the EUR/USD. Only in times of either a major event disturbing valuations such as the French election last year or risk sentiment flows, can cause such an anomaly in the pricing. Does this means EUR will shoot straight up? Far from true such statement. But, it does suggests that at any opportunity available, this is a market that I am expecting will be loading on EUR shorts, trying to fade, deceive and manipulate traders, until institutions have accumulated enough size for what I believe will be a macro move into the 1.17. That’s where the EUR/USD is justified to be trading based on its yield spread, which is also aided by a stable Italian premium and even the breakouts seen in Gold or the Chinese Yuan.