Well, a couple of hours ago, EURUSD rallied to 1.1868, extending what, at this point, is a laughably good run.
If you haven’t kept up with this story, it is truly remarkable.
The common currency just logged its fifth consecutive month of gains against the dollar – that’s the best streak since a six-month run ended January, 2013:
This has of course been due in part to the fact that between a Fed that’s hamstrung by lackluster incoming inflation data and Washington gridlock on one hand, and an ECB that’s seen Europe clear its largest political hurdle (the French election) and is looking at fairly decent data on the other, the rate differentials argument is moving in favor of the common currency as the transatlantic policy divergence narrows:
But as you can see from that chart, the euro has even moved out ahead of that rationale.
Even so, this may still have room to run.
“The euro‘s swift march higher — including today’s extension toward $1.19 — is one of the biggest stories in markets right now, but not everyone is all-in, suggesting it may have further to go,” Bloomberg’s Kristine Aquino wrote this morning, adding that “one-year risk reversals signal traders are still negative on the euro against the dollar for that tenor”:
Also consider this out from Bloomberg on Tuesday evening:
Why take a punt on developing countries, with all their geopolitical risk and commodity exposure? The euro has beaten emerging-market currencies for the past four months, pretty much since the the first round of the French election in April when Marine Le Pen scored a lackluster 21%. The most-traded EM currencies are up 2.4% against the dollar since then, but have lost 6.5% against the euro. It largely reflects the euro‘s five-month winning streak against the dollar, the longest in five years. So higher-risk EM currencies have been a good bet against the dollar, but not as good as the single currency.
Here’s a fun chart to give you a visual on that dynamic:
Paging Mario Draghi: how much longer can you stand this, sir?