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Record High for Euro USD future

Wednesday, 27 February 2008

The USD fell to an all-time low today and the Euro FX future march delivery broke the 1.51 price level. The macroeconomic scenario is complicated and major currency analysts predict that the rate can rise up to 1.55 by the end of march. We have to focus on rate decisions of both Fed and ECB to understand the price upside movement.

The US central bank will likely reduce again its overnight lending rate to fight a slumping economy. On the other hand it seems that ECB has no intention to cut Euro lending rate because of inflation concerns fueled by dangerous data release on German import prices. Considering the interest rate parity theory (IRP), an increase in the spread between US and Europe interest rates will carry to a backwardation condition in Euro FX future. We are already in this condition, because March future is higher than the June's one. We do not expect Euro FX future to be at 1.55 by the end of march for this reason, however we expect it to trade above 1.50.

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