EUR/USD may drift up towards 1.12 - SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that the EUR/USD may even drift up towards 1.12 in this environment.

Key Quotes

“The negative economic implications for the UK economy of leaving the EU are clearly understood but there is plenty of willingness to downplay the impact on the rest of Europe let alone the rest of the world. If jobs leave the UK for example some of them turn up elsewhere in Europe, and so on. I think this is wrong: Extricating itself from the EU is damaging for the UK’s economy because it’s so intertwined with the rest of Europe but for precisely that reason, it’s negative for Europe too. Still, EUR/USD could head back towards 1.14 if risk sentiment stabilises for a moment or two.

The same is true in reverse of the dollar. It’s no surprise that periods of risk aversion see the trade-weighted dollar rally even as Treasury yields fall, but unless a recovery in risk sentiment is encouraged by a pretty sharp sell-off in Treasuries, the dollar too, will fall back. The debate rages on between those who think that ‘lower for longer’ Fed policy is a panacea for all the global economy’s ills (except, perhaps, Brexit) and those who think this particular drug has lost its power.”