Flagship synopsis - The battle between math and story
This week's piece is a look at the math (the facts) and the story (the narrative) behind the Euro’s strength and the USD weakness. It is a discussion about markets getting ahead of themselves. I am coming around to the thinking that, not only is the market underestimating the outlook for further Fed tightening over the course of the next 18 months, but if the dovish tone of Mario Draghi at his press conference on Thursday is any guide, then the Euro at 1.20, a 13% rally versus the dollar since the start of the year, is more than factoring in how much tightening is on the horizon from the ECB. Be careful being short the USD, because you don’t have growth momentum, Mario Draghi, or interest rate differentials on your side.