Strong US data suggest EUR/USD could keep struggling in the near term – SocGen

EUR/USD has declined after hitting 1.1100/1.1150 in December. Economists at Société Générale analyze the pair’s outlook.

Unlike in the US, the Eurozone economy is operating below potential

Unlike in the US, the Eurozone economy is operating below potential, meaning the danger is low of pressure from demand on prices. This hasn’t stopped European rates from correcting with US ones across the curve since last week, though the magnitude has been considerably inferior. The Euro 5y IRS is up 7 bps since Friday compared to 30 bps for the US. The widening of the spread is the driving force for the new low in EUR/USD.

We’ll find out if the pair can convincingly reclaim 1.0780 and repeat the price action of last December when the Fed sparked Dollar profit taking. The landscape has of course changed since then. 

Strong US data suggest EUR/USD could keep struggling in the near term.