EUR/USD is likely to drift lower over time - SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that in Europe, the debate now will be about how much a UK EU exit affects growth prospects and the political landscape elsewhere.

Key Quotes

“Perhaps the easiest way to think about this is to observe the inverse correlation of the UK and EU current account positions in recent years. The Eurozone saves too much and the UK saves too little. As the UK is forced to save more, so Europe needs to boost demand, but the country with the greatest excess savings, Germany, is perhaps the least likely to embrace easier fiscal policy and dissaving.

For a bond investor this is easy – even with super-low yields, duration is favoured and the brighter mood is reflected in peripheral; spreads and expectations that the ECB will widen the universe of bonds it can buys. In FX, this just means that despite the better mood, EUR/USD is likely to drift lower over time. Short EUR/CAD is one way to express that at the moment.”