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EUR supported by equity demand?

Robert Savage, chief strategist at hedge fund FX Concepts, explains the recent euro strength by the increased demand of foreign investors for euro zone’s equity. He expects the euro to continue to rally for a couple more weeks.

In his view, the surprising improvement in economic data in Europe this summer is attracting investors back into the equity markets. The Euro Stoxx 50 is up by 5.8% over the past month, which is supporting demand for the euro.

However, he points that euro remains well above its fair value of around $1.25. In his view, the worst phase of the crisis is over, but economic (dangerously high unemployment in periphery countries) and political (German elections in September) persist. Mr. Savage expects the currency to stay in the range of $1.28 to $1.34 in the near term.

Chart. 1-year EURO STOXX 50

Source: Bloomberg

 

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