EUR/USD: Are PPP and politics enough to get it up? - SocGen

Germany seems to be edging ever-so-slowly towards resolution of its political impasse, which is more than can be said of the UK or the US, according to Kit Juckes, Research Analyst at Societe Generale.

Key Quotes

“Angela Merkel and Martin Schulz will start negotiations on Thursday and concern about the alternatives is likely to help them reach some kind of agreement, ensuring the stability the markets want, irrespective of how it makes German voters, feel. EUR/USD has broken back out of its mini-range and while it did so in holiday-thinned markets, the odds are that we’ll see 1.21 again this side of Christmas. Positioning charts suggest a certain wariness would be on order and relative yields ones provide ample to reason to doubt the break. I’ll feel really stupid if this is a great big head-fake, but I think the gravitational pull of all those PPP/FEER valuations is too strong to resist.”