Elevated “crash risk” in EUR/USD – Commerzbank

By FXStreet While the fears of a recession in the US that temporarily prevailed on the market are increasingly proving to be exaggerated, the economic outlook for the euro zone has become considerably cloudier, according to Thu Lan Nguyen, analyst at Commerzbank. For this reason investors are again betting on more divergence between the Fed and ECB’s monetary policies and therefore on an elevated “crash risk” in EUR/USD.

Key Quotes

“The recent improvement in economic data and a somewhat stronger inflation pressure have for now dispelled the fears of a recession in the US that had temporarily dominated the markets.
Also, inflation expectations have moved away from their lows, and the trade-weighted exchange rate of the USD has stabilised. Since today’s employment report should also turn out rather positive, it is likely that investors will increasingly bet on rate hikes by the Fed, which should provide tailwinds for the USD.”

“In contrast, prospects for growth in the euro zone have deteriorated considerably. Weak economic indicators and the decline in the euro zone inflation rate have made it more likely that the ECB will decide a comprehensive package of measures next Thursday. An elevated “crash risk” in EUR-USD is therefore being priced on the option market.”

“Further developments …read more

Source:: FX Street