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Barclays: EUR USD overvalued PDF Print E-mail
Written by Sam Coventry   
Tuesday, 17 August 2010 10:32

Traders will today be looking for signs the global economic outlook is improving following the dismal GDP numbers from Japan.


Barclays (LON:BARC) have said in their view the Euro Dollar exchange rate is overvalued.

A foreign currency research note from Barclays Capital has suggested a correction lower in EUR USD could be due.

The exchange rate is currently 0.64% higher this morning after successful bond auctions in Ireland. Barclays have suggested focus will temporarily shift away from the US to Europe over the course of the week.

Given the current nervous state of the markets, the results of the auction will be closely watched.

"Our financial fair value (FFV) model for EUR USD (based on a rolling regression of currency returns against relative yields, relative equity performance, commodities and a sovereign risk term consisting of Spanish and Italian 5y bond yields over Germany) shows that the EUR is currently overvalued by 1.2%" says Raghav Subbarao at Barclays Capital.

As such any move higher in peripheral yields should increase this overvaluation, and we would expect to see a correction with EUR USD moving lower.

Yesterday the EUR USD closed up at 1.2820, from an opening day price of 1.2775.

Yesterday saw the exchange rate rise for the first trading day since the pair began a sharp correction last week.

However, gains in the pair were reduced following the release of strong TIC long term purchases data.

The report came in positive at 44.4B on expectations of 36.3B.

But the added support was not enough to turn the tide of negative risk sentiment. The Dow Jones Industrials Average finished the day even.

Forex markets today


Traders will be looking today for signs the global economic outlook is improving following the dismal GDP numbers from Japan.

A slew of data is on the calendar for today's trading. The major data releases from the U.S. will be monthly building permits and monthly PPI.

Housing data has been bleak during the recent downturn in U.S. economic data. Tomorrow's release of building permits may carry the same trend.

Last Updated on Tuesday, 17 August 2010 10:35
 

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