SuddenDeath
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The EUR is not the USD’s natural anti-pole on non-farm payroll release days. Typically the EUR is not on the list of
strongest or weakest currencies on payroll release days this year. The May NFP day was the exception, when the EUR made
it onto the top of the strongest major currencies on the day. (The EUR’s strength after the May data was because of a marked
rise in talk about Fed QE). Only the kind of report that raises QE3 expectations meaningfully (e.g. an undistorted NFP number
below 50K), is likely to get any EUR positive reception and even then the JPY would be preferred. In contrast, if the EUR is
becoming even more of a favorite funding currency now that the ECB has joined the ‘zero bound club’, we should see the
EUR as one of the weakest currencies on ‘risk on’ days. Yesterday the ECB managed to reduce front-end yields for quality
core paper, and raise back-end yields for the periphery. shows that the EUR does not do well in yield curve (twist) steepening
environments. The market response appears to reflect a view that the ECB either lacks the ability, or more likely the
willingness, to provide path breaking support for the union, without an even more elevated sense of crisis.
strongest or weakest currencies on payroll release days this year. The May NFP day was the exception, when the EUR made
it onto the top of the strongest major currencies on the day. (The EUR’s strength after the May data was because of a marked
rise in talk about Fed QE). Only the kind of report that raises QE3 expectations meaningfully (e.g. an undistorted NFP number
below 50K), is likely to get any EUR positive reception and even then the JPY would be preferred. In contrast, if the EUR is
becoming even more of a favorite funding currency now that the ECB has joined the ‘zero bound club’, we should see the
EUR as one of the weakest currencies on ‘risk on’ days. Yesterday the ECB managed to reduce front-end yields for quality
core paper, and raise back-end yields for the periphery. shows that the EUR does not do well in yield curve (twist) steepening
environments. The market response appears to reflect a view that the ECB either lacks the ability, or more likely the
willingness, to provide path breaking support for the union, without an even more elevated sense of crisis.
