Most people who’ve been watching currencies long enough have a sort of gut feeling what fair value is for the major currency pairs.
In my case, I think EUR/USD is in neutral territory under normal circumstances between 1.15 and 1.25. Neither the US or Europe has a huge exchange rate advantage in that band…
Since the Fed has done more QE than the ECB (though that could change as the ECB gets ready to lend three-year cash in unlimited amounts to European banks…), maybe we should shade up fair value to 1.20/1.30 or even 1.25/1.35…
Bottom line: EUR/USD is just reverting to the norm, historically speaking, rather than trading weakly. It was born at 1.1975 back in 1999 and hit 0.82 not too long after…
What does this mean for your position? Absolutely nothing!
Fair value for cable, in my experience is somewhere between 1.60 and 1.70 and USD/JPY probably between 115 and 120.
What do you think?