We have seen the EUR/USD realized volatility move higher this week. Only on ECB day, the cross posted a range equivalent to the average weekly move seen over the past 14-weeks. Despite the hawkish tone from the statement and the flexibility to hike rates by 50bps, the euro gave up 1.87% to the dollar on the week, this summed to a -7.48% YTD performance. If we were to wrap up here, this would be the worst EUR/USD year since 2015
ECB hawkishness is seen unsurprising and at the same time desks doubt the central bank could tighten as much as the market is pricing
Despite the potential rise in the cost of money, another factor not supporting the EUR move higher is ETF flows. The Eurozone is the bottom region in the capital outflow ranking as it has suffered outflows of USD42.7 Bln, while the U.S. records the highest YTD net inflows at USD239.60 Bln, according to data compiled by Bloomberg
Net flows show investors taking their money out of eurozone capital markets and piling into the U.S., regardless of the selloff seen this year. On the year, S&P 500 is down 18%, EuroStoxx 50 is down 16%. If this trend is to continue, the EUR/USD is unlikely to recover the lost ground seen in 2022, even as monetary policy is starting to move in line between the ECB and the Fed
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