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Short EUR/USD as dollar funding cost is on the rise – Deutsche Bank

FXStreet (Mumbai) - The Deutsche Bank research desk cites the rising cost of dollar funding as another major reason to short the EUR/USD pair apart from the regular monetary policy divergence story.

Key Quotes

“Over the last few weeks the cross-currency basis, representing the additional cost of borrowing dollars in the FX swap market over and above the rate differential, has ballooned to the highest since 2011.”

“The widening is happening against multiple currencies. Widening basis does not seem to be driven by rising credit risk, similar to Lehman and the Eurozone crisis. Alternative credit metrics such as the USD Libor-OIS spread have remained very well-behaved.”

“The move seems to go beyond traditional year-end funding constraints because even longer-dated cross-currency basis has widened out.”

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