N asks a good question. Where from here? 1.35 or 1.15?
Lets assume the stress tests are relatively uneventful. A few smaller banks have to raise a few bob but nothing dramatic (a pretty safe bet, from what we know of the criteria).
I go back to my base-case scenario.
My world view has forever been that fair value for EUR/USD is somewhere between 1.15 and 1.25. Given the fact that the Fed has more than doubled its balance sheet and Uncle Sam has fruitlessly spent near $1 trln in stimulus, I now put fair value around 1.25/1.35.
That’s were I see things settling out for the balance of the summer after the stress test, as long as there are no major surprises.
