This Hasn’t Happened Since 2009…

There’s been no shortage of digital ink spilled over the past couple of weeks about the euro’s inexorable rise both against the dollar and, more recently, agains the Swiss franc which at this point is more “beleaguered” than Jeff Sessions after a Trump Twitter tantrum.

In case you need a reminder about just how far we’ve come in EURUSD, here’s the big picture:


The story here is pretty simple. Or at least at a high level it is. It’s all about policy divergence or, in this case, a perceived lack thereof.

Basically, the policy divergence theme that was supposed to underpin the rate differentials pillar for USD now looks even flimsier than it looked just a week ago. In fact, between Sintra (Draghi hawkish), Yellen on Capitol Hill (dovish), lackluster CPI in the US, and the dovish Fed statement, it’s no longer clear that the policy divergence theme makes any sense at all. Throw in the precarious state of affairs in Washington and the fact that Europe cleared its biggest political hurdle on May 7, and you’ve got a recipe for a stronger euro.

There’s a whole lot more to this and if you’re sincerely interested – which you should be, especially if you’re long European equities – you can read everything you’d ever want to know in “‘Sonata, Adagio & Minuet’: A ‘Symphony’ Of Debate Emerges Around Surging Euro.”

But just to give you a kind of visual representation of how the FX landscape is shifting beneath your feet, do consider the following chart which shows that EURUSD 6-mo. 25D risk reversals are basically at parity – the highest since 2009:




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