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EURUSD Fundamental Drivers Analysis
13/02/2018
EURUSD Fundamental Drivers Analysis

EURUSD grinds higher despite increasing concerns about USD return. Is the sharp increase in prices a sign of the pair’s correction? A detailed explanation is given in the 13 February EURUSD Fundamental Drivers Analysis by Arnaud Masset, a market Analyst at Swissquote.

13 February,  Swissquote – EUR/USD has been trading within a wide range since mid-January, as investors remain skeptical about further gains. After hitting 1.2537 on January 25th, the single currency has been grinding lower and moved as low as 1.2206 before stabilizing at around 1.2320.

13 February EURUSD Fundamental Drivers Analysis

Looking at the options market, one can notice that the price of put options have increased steadily since January 2nd, especially for shortest term maturities, which tends to suggest that market participants are bracing for a correction in EUR/USD. The 1-week 25-delta risk-reversal measure hit -0.6375% yesterday, while the 1-month one stood at -0.7725%, compared to 0.22% and 0.2625% on February 2nd, respectively.

For now, the sharp increase of put prices has not affected the spot market. However, this price divergence tends to suggest that investors are positioning themselves for a stronger US dollar. Indeed, the next couple of months will be key as the Fed, which has a new boss, Jerome Powell, is expected to lift interest rate in March. In addition. Rising inflation pressure in the US has forced investors to revise their rate hike expectations to the upside.

World markets recover after big drop

Following recent market drop, we see extended improvement on markets for the current week. MSCI World Index increased by 1.22%, closing at 2’076 points, its highest rate hike since April 24th, 2017, supported by Materials (+1.79%), IT (+1.67%), Energy (1.64%) and Industrials (1.20%) sectors. US markets extended Friday’s gains, with the Dow Jones Industrial Average surging at 24’601 (up 410 points or +1.70%), heading toward hourly resistance at 25’293 (February 7th, 2018 high) while S&P500 2’656 (+1.39%) and Nasdaq 6’981 (+1.56%) have similar rising momentums.

On the European side, Euro Stoxx 50 surged at 3’368 points (+1.27%), slowly recovering from last week’s selling pressures (last week performance at -5.60%). German DAX and French CAC40 increased by +1.45% and 1.20% respectively.

Asian markets follow the same path, for the most part, Hong Kong Hang Seng currently quotes at 29’878 (+1.35%) while Korean Kospi and Australian S&P/ASX200 both increase at 2’395 (+0.41%) and 5’856 (+0.60%). Japanese markets remain lagers, as Nikkei 225 is down at 21’245 (-0.65%) following Shinzo Abe announcement on Friday to reappoint Kuroda for a second term as chief of the Bank of Japan, whose monetary policy consists of maintaining monetary policy loose for the time being, thus as a consequence reducing pressures on Japanese yen (USD/YEN at 108 or -0.62%).

US 10 years Treasury yields currently react inversely as they increased by +0.25% during yesterday’s closing and decreased by -0.32% this morning, currently valued at 2.8494 (US 2 years treasury up 0.40% since yesterday, estimated at 2.0815). 10 years US-German Bund spread remains at 1.32% (0.91% 6 months ago).

Bloomberg commodity index surged at 86.33 (+0.80%) and is currently given at 86.67 (+0.40%). Looking forward to tomorrow’s January Consumer Price Index (expected at 2%) and Japan 4Q GDP, we believe these data are core as to determine how markets will react in the coming days.

Disclaimer

This article 13 February EURUSD Fundamental Drivers Analysis was written by Arnaud Masset and Vincent Mivelaz, Market analysts at Swissquote. While every effort has been made to ensure that the data quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein.

This document does not constitute a recommendation to sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or in any other kind of investments.

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