12 Jan 2015
Reversal risk to the EUR/USD downtrade – Nomura
FXStreet (Barcelona) - Research Analysts at Nomura explain that euro has shown a tendency to start the year poorly but recover after a few weeks, with similar cases seen in 2005, 2007 and 2012, and looking at the FX trends early in the year there is a potential reversal risk to the EUR/USD trade.
Key Quotes
“Sentiment on the euro is clearly negative, and futures market positioning is also close to a record. But the options market skew is not yet at an extreme. So it is possible that sentiment could get even more bearish. That said, there is a tendency for FX trends early in the year (as investors return to work) to be very unstable.”
“On a number of occasions, we have seen the euro start the year very poorly, only to recover after a few weeks. This was the case in 2005, 2007, and 2012, for example, and there is a broader pattern of negative autocorrelation in currency space early in the year.”
“It is easy to argue that this year is different, as the ECB is potentially about to deliver QE. But at a minimum, it suggests that risk needs to be managed carefully.”
“At this point, we are looking to tighten stops on our spot positions, to 1.1950 from 1.2250, to protect profits.”
Key Quotes
“Sentiment on the euro is clearly negative, and futures market positioning is also close to a record. But the options market skew is not yet at an extreme. So it is possible that sentiment could get even more bearish. That said, there is a tendency for FX trends early in the year (as investors return to work) to be very unstable.”
“On a number of occasions, we have seen the euro start the year very poorly, only to recover after a few weeks. This was the case in 2005, 2007, and 2012, for example, and there is a broader pattern of negative autocorrelation in currency space early in the year.”
“It is easy to argue that this year is different, as the ECB is potentially about to deliver QE. But at a minimum, it suggests that risk needs to be managed carefully.”
“At this point, we are looking to tighten stops on our spot positions, to 1.1950 from 1.2250, to protect profits.”