Forex Flash: EUR/USD undervalued vis-à-vis EZ sovereign spreads - Westpac

FXstreet.com (Barcelona) - Despite the spike in EURUSD, which continues to approach 1.33 round number, "the currency still appears to be slightly undervalued vis-à-vis EZ sovereign spreads" says Richard Franulovich, analyst at Westpac.

Mr. Franulovich adds: "EZ sovereign spreads have resumed their narrowing trend in the new year and the Spanish-German 2yr spread is now down to 199bp, lowest since March 2012. Current sovereign spreads suggest EURUSD should be nearer 1.35."

"A similar dynamic played out in Q3 2012 when sovereign spreads narrowed sharply following Draghi's, 'whatever it takes' commentary and the announcement of the ECB's conditional bond purchase plan. EURUSD resisted the sharp decline in sovereign spreads for a good while back then but eventually rallied aggressively, closing the gap with sovereign spreads."