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28 May 2013
Flash: Euro remains reasonably strong, considering... - BMO Capital Markets
FXstreet.com (Barcelona) - Stephen Gallo, European Head of FX Strategy at BMP Capital Markets notes that in light of the recent, reasonably strong performance of the EUR on the cross rates, despite persistent slippage in some core and peripheral macro economic data points, he is keeping an open mind regarding how “mature” or well advanced this cycle of EMU-positive capital flows and sovereign spread compression has become.
Broadly speaking, he remains of the view that there are three capital flows-related components to EUR strength at this stage, particularly on the cross rates. First, the remnants of the July 2012 “Draghi put”, second, Japanese “Abenomics-inspired” flows and third, the decline of interest in the “high-yielding” and developing market currency spaces, which has benefited the EUR partly by default. He adds that in the last week or so, the biggest area of concern we have for these forms of EUR strength is that, in a very subtle way, the JPY crosses appear to have shifted temporarily to a “sell on rallies” paradigm from a “buy aggressively on dips” one. he finishes by writing, “All in all, this “clouds” the outlook for or breathes an air of uncertainty into the component of EUR strength due to JPY weakness and expectations for interest in foreign currency assets on the part of Japanese investors and real money institutions.”
Broadly speaking, he remains of the view that there are three capital flows-related components to EUR strength at this stage, particularly on the cross rates. First, the remnants of the July 2012 “Draghi put”, second, Japanese “Abenomics-inspired” flows and third, the decline of interest in the “high-yielding” and developing market currency spaces, which has benefited the EUR partly by default. He adds that in the last week or so, the biggest area of concern we have for these forms of EUR strength is that, in a very subtle way, the JPY crosses appear to have shifted temporarily to a “sell on rallies” paradigm from a “buy aggressively on dips” one. he finishes by writing, “All in all, this “clouds” the outlook for or breathes an air of uncertainty into the component of EUR strength due to JPY weakness and expectations for interest in foreign currency assets on the part of Japanese investors and real money institutions.”