Oil and the Fed are key – Socgen

FXStreet (Guatemala) – Kit Juckes, economist at Societe Generale explained that oil prices themselves have stabilised and that’s stopped the rot for now, but the headlines are all about the Saudi fiscal response to the sustained weak price (loads of austerity).

Key Quotes:

“Whether the USD/SAR peg holds will be a keen talking point in h1 2016. Where oil prices find a base will be another. In the meantime, I drew two charts with my morning coffee as I ponder the year ahead…”

“The first chart shows the correlation between EUR/USD and interest rate differentials – which collapsed at the start of 2015 but has now recovered, and in Q4, it’s the short rates which are once again dominant. Correlation isn’t the same as causation, but we are back in a similar world to the one we saw before this year, when a 1% move in 2-year rates was associated with a 12-figure move in EUR/USD.

On this super-simple measure, it would take a move in 2-year US rates to 2%, to drag EUR/USD to parity. That should happen in H2.”

Kit Juckes, economist at Societe Generale explained that oil prices themselves have stabilised and that’s stopped the rot for now, but the headlines are all about the Saudi fiscal response to the sustained weak price (loads of austerity).

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