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The recent relief over a Greek default is likely to put the spotlight back on the “risk on” trade.  Societe Generale issued a recent report that says this means the Euro is likely to continue its rally to the 1.50 range while the dollar continues its bear market move lower.  They believe markets will revert back to focusing on the fact that the ECB is tightening while the Fed is remaining accommodative.  All of this paves the path for a rather bullish trend to continue:

“EUR/USD and USD/JPY trade within well-established ranges.  But with Greece passing the votes to clear the way for the next tranche of EU/IMF support, the key to a move to EUR/USD 1.50 and beyond is confirmation that the soft patch is not something much more sinister.

We expect July/August to see a friendlier environment for the euro, a less friendly one for yen and dollar.
– Consensus forecasts look for the dollar to bounce from here.  Market view = current economic soft patch will be just that and stronger growth in H2 will support the dollar. With the euro hobbled by debt crisis and the yen as unloved as ever, that makes the dollar the market’s darling of the G3 – albeit hardly a stellar group to shine in!

  • We continue to believe that the dollar is vulnerable.
  • Reflected in a higher forecast for EUR/USD in 12m than we see published elsewhere (1.55).
  • Preference for CEE higher-yielding currencies, to either the super-fashionable currencies of Asia (KRW, SGD, MYR) or the Latam high-flyers (BRL, MXN).
  • This reflects neither a super-optimistic view of the denouement of the eurozone debt crisis or pessimism about the US economy.

At its heart is a belief that Fed policy will continue to promote dollar weakness.”

Source: Societe Generale

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