USD, EUR daily briefing: Commerzbank

Quotes from Commerzbank:

• USD:
  
  In just over a week Richard Fisher will retire from his position as head of the Federal Reserve Bank of Dallas. 
  
  He used a final opportunity to teach his FOMC colleagues an important lesson: if they leave it too late to start hiking rates, they will have to raise rates at a higher pace which might harm the economy. What a message to include into the last speech as FOMC member. 
  
  However, past experience is on Fisher's side. Usually the Fed surprises with a higher speed of rate hikes than priced in by the market. And yes, this usually harmed the US economy.
  
  The market is increasingly expecting to see Fed rate hikes. Of course that fits in with the USD strength we are seeing.
  
  How much USD strength the Fed would be willing to tolerate, does not seem much of an issue for the Fed so far. While that remains the case the USD will have to bear the brunt of the appreciation caused by the policies of other central banks.
  
  
• EUR: 
  
  Nonetheless the current fall in EUR-USD will not continue. Mainly the speed of the depreciation can of course not be maintained.
   
  In the current fundamental environment it is not easy for market participants to position themselves against falling EUR-USD levels, but even the current period of depreciation will come to an end at some stage.
  
  What is interesting in this context is that the fall in EUR-USD from 1.12 in the middle of last week to below 1.08 this morning is not merely due to USD strength. Otherwise currency pairs such as EUR-GBP would not have come under so much pressure.
  
  Commerzbank's factor model (which takes into consideration any correlations in the G10 universe) illustrates considerable EUR weakness in addition to USD strength. Approx. one third of the losses in EUR-USD are due to the single currency.
  
  This weakness can hardly really be explained with the recent start of the ECB's QE programme, as it is well known that the announcement effects of programmes like these already put considerable pressure on the currencies concerned.
  
  However, that also means that QE is likely to be largely priced in. Whether this will result in any further EUR weakness will depend largely on the effect the ECB purchases have on yields on the European bond market.