EUR/USD: A Deja Vu Of 2005-07 But Little Benefit In Buying EUR N-Term
For all the talk of discord and chaos on the US political scene, this environment reminds us of the period around 2005-07. when commodities were strong, equity markets lacked volatility while making new highs and all forms of carry and illiquidity were in favour, with exotic currencies all the rage, against a backdrop of slow but steady rises in US interest rates. Of course, that particular era did not end well given the financial crisis came hard and fast in 2008. Also, these “feel-good vibes” have only existed in earnest since November, so the jury on longevity is still out.Nonetheless some striking parallels exist with that bygone era, which for older market participants likely stand out as among the best of times. Still, there are obvious differences too. For example EURUSD rallied at an annualized rate of about 15% between Q1 2006 and Q1 2008, taking the pair to all-time highs near 1.60.With the pair now close to parity again, EUR remains hampered by negative rates, quantitative easing, macro divergences and political risks that are no longer infecting just the periphery but also true core countries like France.We continue to see little benefit in owning EUR given good odds that political risks rise further in the next 2-3 months.