There have been short-term abnormal fluctuations in interest rate spreads recently
For the euro, two sets of interest rate differentials inside and outside are still used to observe changes in the exchange rate.
The euro exchange rate has always been under obvious pressure. In principle, it is because of energy security issues. Europe's attitude towards Russia has always been relatively tough. Due to energy issues, European economic expectations have dropped significantly. At the same time, the obvious split between the two sets of U.S. Treasury bond interest rate spreads also proves this on the side.
We observed the internal two sets of long- and short-end interest rate spreads, and the long-end interest rate spread showed a clear V-shaped reversal. Although it cannot be determined that the interest rate difference has reversed, it must have a certain degree of support for the euro exchange rate in the short term. The short-end spread structure also appeared a pattern similar to a double bottom.
As the Fed raises interest rates, the European Central Bank has also made clear its attitude, and its expectations for future interest rate hikes by the European Central Bank are also clear. So I can't rule out the external long-end spread as a result of the ECB rate hike.
The long-end spread broke the volatile range, but the overall strength was not very strong.
The short-term interest rate spread also broke out of the range at the same time, and in principle, it began to show a state of obvious stabilization.
The exchange rate still needs to be observed. There are signs of a double bottom on the technical chart, but I am not sure whether the price trend can be maintained. The feeling of staring at the disk is that the euro itself is still in a relatively weak state.
There is also a big question: the ECB said that after raising interest rates, there will be new tools to maintain the health of internal interest rate spreads, but the tools the ECB can use seems to be limited. If this doubt can be dispelled, then it is expected that the euro will have a more obvious rebound.
For the euro, two sets of interest rate differentials inside and outside are still used to observe changes in the exchange rate.
The euro exchange rate has always been under obvious pressure. In principle, it is because of energy security issues. Europe's attitude towards Russia has always been relatively tough. Due to energy issues, European economic expectations have dropped significantly. At the same time, the obvious split between the two sets of U.S. Treasury bond interest rate spreads also proves this on the side.
We observed the internal two sets of long- and short-end interest rate spreads, and the long-end interest rate spread showed a clear V-shaped reversal. Although it cannot be determined that the interest rate difference has reversed, it must have a certain degree of support for the euro exchange rate in the short term. The short-end spread structure also appeared a pattern similar to a double bottom.
As the Fed raises interest rates, the European Central Bank has also made clear its attitude, and its expectations for future interest rate hikes by the European Central Bank are also clear. So I can't rule out the external long-end spread as a result of the ECB rate hike.
The long-end spread broke the volatile range, but the overall strength was not very strong.
The short-term interest rate spread also broke out of the range at the same time, and in principle, it began to show a state of obvious stabilization.
The exchange rate still needs to be observed. There are signs of a double bottom on the technical chart, but I am not sure whether the price trend can be maintained. The feeling of staring at the disk is that the euro itself is still in a relatively weak state.
There is also a big question: the ECB said that after raising interest rates, there will be new tools to maintain the health of internal interest rate spreads, but the tools the ECB can use seems to be limited. If this doubt can be dispelled, then it is expected that the euro will have a more obvious rebound.
Comment:
The rising wedge formed by the price action on 6.17 was broken on 6.29, and the price action was moving downward.
Comment:
Note that the ECB's expression is very interesting, Lagarde said that they are now working on the tool, but did not say what the tool is. I can only understand that she has no effective tools to deal with the negative impact of interest rate hikes on Europe. In the process of observing the fluctuation of interest rate spreads, all interest rate spreads still maintain a short-term upward rhythm. Short-term exchange rate fluctuations began to reverse course with interest rate differentials.
Comment:
At the same time, the long-term bond yields of US Treasuries began to fall after Powell's speech, which is particularly important. Although I know that the market is already expecting a future economic slowdown, in fact, the economy will slow down significantly. The rhythm hasn't quite started yet. However, after the long-term bond yield remained at around 3.2, the entire curve did not move upward smoothly, and the long-term bond yield began to turn downward after a high level and flattening.
Comment:
My EUR position is around 1.0455, and I moved the stop loss to 1.0465. If the price trend destroys my long position in the short term, it means that the short-term possible double bottom is unlikely to be realized. In principle I also need to wait for the key signal.——2022.06.29
Comment:
The euro continues to go low, the German economy is in recession, if the energy problem cannot be solved, the European problem is still very big, there is no bullish signal in the technical structure, the interest rate spread has changed slightly, but the overall is OK, it is expected to be because of betting on the European Central Bank to raise interest rates The simple understanding is that the market believes that the European Central Bank's interest rate hike is unsustainable. Continue to wait for critical signals:
1. Energy problem solved (internal problem)
2. The U.S. proactively changes policy expectations (external issues)
2022.7.5
1. Energy problem solved (internal problem)
2. The U.S. proactively changes policy expectations (external issues)
2022.7.5
Comment:
1. The same is true for the euro. The economic data of Germany and other European countries continued to deteriorate, but it did not drive the exchange rate to continue to fall. Recently, the exchange rate of the euro has also begun to stabilize.
2. It is unknown whether the rate of change in interest rates in the external market is being traded (the United States). At least at this stage, it seems that the euro has begun to gradually bottom out.
3. In terms of strategy, we still focus on two core points. The first is whether the European energy problem will improve in the short term, and the second is whether the interest rate change of the Federal Reserve has slowed down, or entered the observation stage. The two questions still correspond to the changes in the interest rate spread between the two groups of euros. Therefore, the core logic remains unchanged - the double interest rate differential drives the change in the exchange rate of the euro.
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2. It is unknown whether the rate of change in interest rates in the external market is being traded (the United States). At least at this stage, it seems that the euro has begun to gradually bottom out.
3. In terms of strategy, we still focus on two core points. The first is whether the European energy problem will improve in the short term, and the second is whether the interest rate change of the Federal Reserve has slowed down, or entered the observation stage. The two questions still correspond to the changes in the interest rate spread between the two groups of euros. Therefore, the core logic remains unchanged - the double interest rate differential drives the change in the exchange rate of the euro.
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