Two forces acting on the EURUSD with AT

hello,

For EURUSD pair, they seem to act now two forces with opposite direction.

On the one hand, the factors strengthening the dollar may be rising yields of U.S. Treasuries, increased expectations for interest rate increases observed even on the basis of FRA contracts and the possibility of starting a program of QE in the euro zone, on the other hand, the euro could remain strong for continued growth rates LIBORu in EUR and Euribor.

At very low rates for the dollar on the interbank market, investors prefer to keep their deposits in euros or buy euros on the market to be able to locate them in deposits, interest on the basis of of these rates, because they have a greater interest and provide a fast and secure profit.

Below, a change in EURIBOR rates in the context of a weekly and monthly basis. Interest rate rises across the curve, making the euro attractive in every term capital investment.

chart 1. Euribor Fixings Curve, 2014-04-24

These markets should therefore be closely watched in the context of further changes in EURUSD, which is still in wide consolidation.

Euribor and libor for EUR increasingly higher

The European Central Bank today announced that the liquidity surplus in the banking sector of the euro area fell below 100 billion EUR.

This is the lowest level since 2011. Following this message euribor rates and libor in eur recorded another increase.

As a result, increases the spread between the two rates in relation to the dollar, making the euro more attractive on the interbank market.

chart 2. Libor USD vs. Libor EUR, 2014-04-24

In addition, today we had a press conference the president of the ECB - Mario Draghi

The most important sentences:

- falling inflation may require the program to buy assets [QE];

- A strong euro also reflects the improvement in the eurozone;

- The ECB may cut interest rates yet; (what for?)

- We can add liquidity to the market if needed;

- We publish minutes, but they should not describe the position of the individual members of the ECB;

- We expect that lending activity will revive.

AT

chart 3. EURUSD Weekly, 2014-04-24

I believe that in the near future we will still viewed the following, but limited appreciation of EUR. The representatives of the ECB are limited in recent times only to verbal threats. Pointing out that it was the strong euro, we observed levels of inflation below the target. I believe that lowering the reference rate to lower levels than we see at present there is no benefit. The rates on the interbank market for quite some time have nothing to do with the rate established by the ECB.

Therefore, I believe that as long as Mario Draghi will not perform specific actions to improve liquidity and market situation, we are WATCHING strengthening of the EUR continues. I also think that the ECB in the near future will not take any action until it receives more data on the current situation of individual economies in the euro zone.

best regards,

oscarjp

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