EUR/USD: Societe Generale bank believes the pair will hover within a tight - but bearish - range for now

By studying the correlations between interest rates and the forex, the Societe Generale bank has come to a number of conclusions.

1) You get the greatest forex exposure from higher 10-year US rates by buying USD/JPY, but also buying the USD against the AUD and NZD.

2) EUR/USD is very responsive to movements in short-term rates, which reinforces the bearish bias.

3) Higher US rates have a good correlation with the decrease of the EUR /USD, which is more than can be said of the reaction of the euro relative to rate movements this year.

There is no significant correlation in 2016 between the EUR/USD and the rate spread, neither at 2 years, or 10 years, mainly because the EUR/USD is not really moving.

We therefore expect the EUR/USD to evolve downward in a narrow range.