10 Mar 2015
EUR/USD a short side market - Nomura
FXStreet (Bali) - Jens Nordvig and Franklin Wang, FX Strategists at Nomura, continue to recommend selling the Euro as the powerful trend of net fixed income outflows remains, they note.
Key Quotes
"We continue to trade the Euro from the short side, and we have expressed the view in a basket versus GBP, PLN, HUF and USD. This basket is performing very well, and is substantially less volatile than any single crosses (especially EURUSD). So far it is up 4.7% since initiation (on the day the ECB QE was announced)."
"While the Eurozone greenshoots may have significant implications for Eurozone equity flows (and equity performance), we don’t think at this juncture those flows are substantial enough to overwhelm a very powerful trend in terms of net fixed income outflows."
"Moreover, somewhat better Eurozone growth may ironically affect monetary policy outside the Eurozone before it affects the ECB, which is currently on “easing autopilot.” We are observing this in other European rate markets currently, and it may even be relevant for the Fed."
"The Euro is starting to enter cheap territory on basic valuation frameworks. But we don’t think a ‘mean-reversion’ argument is very powerful at this juncture when the portfolio outflow story is a very powerful one."
"The main risk to the Euro down trade may be that earnings momentum in the Eurozone corporate sector gathers significant steam so that equity inflows accelerate further. However, so far even very substantial equity inflows over the last 1-2 months have not been able to put a dent in the Euro weakening trend, at least not on a TWI/basket basis. It tells you something."
We will stay short Euro for now, and re-evaluate at 1.08 for EURUSD (our forecast target for end-Q1 2015) and or when the market is more fully pricing a June Fed lift-off date (the market is finally moving on this front).
Key Quotes
"We continue to trade the Euro from the short side, and we have expressed the view in a basket versus GBP, PLN, HUF and USD. This basket is performing very well, and is substantially less volatile than any single crosses (especially EURUSD). So far it is up 4.7% since initiation (on the day the ECB QE was announced)."
"While the Eurozone greenshoots may have significant implications for Eurozone equity flows (and equity performance), we don’t think at this juncture those flows are substantial enough to overwhelm a very powerful trend in terms of net fixed income outflows."
"Moreover, somewhat better Eurozone growth may ironically affect monetary policy outside the Eurozone before it affects the ECB, which is currently on “easing autopilot.” We are observing this in other European rate markets currently, and it may even be relevant for the Fed."
"The Euro is starting to enter cheap territory on basic valuation frameworks. But we don’t think a ‘mean-reversion’ argument is very powerful at this juncture when the portfolio outflow story is a very powerful one."
"The main risk to the Euro down trade may be that earnings momentum in the Eurozone corporate sector gathers significant steam so that equity inflows accelerate further. However, so far even very substantial equity inflows over the last 1-2 months have not been able to put a dent in the Euro weakening trend, at least not on a TWI/basket basis. It tells you something."
We will stay short Euro for now, and re-evaluate at 1.08 for EURUSD (our forecast target for end-Q1 2015) and or when the market is more fully pricing a June Fed lift-off date (the market is finally moving on this front).