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22 Jan 2015
'Pain trade' in EUR at lower levels - RBS
FXStreet (Bali) - Following the ECB's easing package announcement, FX Strategist at RBS notes that the “pain trade” in EUR may actually be toward lower levels, despite the sharp decline already seen post ECB meeting.
Key Quotes
"The ECB announced a sovereign QE purchase program at a pace of €60bn / month that is intended to last until September 2016 “and in any case until the Governing Council sees a sustained adjustment in the path of inflation that is consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term.”
"That commentary keeps the focus firmly on inflation and inflation expectations – a rebound in both is likely what is needed to put the credibility of the ECB’s commitment to purchase assets until September 2016 into question."
"As a result, current inflation data could take precedent over growth data for EUR price action in the near term. Preliminary manufacturing PMIs tomorrow in Germany, France, and the Euro-area may not be enough to shake the EUR downtrend as EUR/USD continues to press new lows."
"The sharp decline in EUR/USD following the ECB’s announcement, despite the EUR-lower view seemingly being largely consensus and well-owned, suggests that the “pain trade” in EUR may actually be toward lower levels. Put another way, investors may be awaiting a “sell the fact” EUR positioning squeeze to enter into EUR shorts at better levels that hasn’t come."
Key Quotes
"The ECB announced a sovereign QE purchase program at a pace of €60bn / month that is intended to last until September 2016 “and in any case until the Governing Council sees a sustained adjustment in the path of inflation that is consistent with its aim of achieving inflation rates below, but close to, 2% over the medium term.”
"That commentary keeps the focus firmly on inflation and inflation expectations – a rebound in both is likely what is needed to put the credibility of the ECB’s commitment to purchase assets until September 2016 into question."
"As a result, current inflation data could take precedent over growth data for EUR price action in the near term. Preliminary manufacturing PMIs tomorrow in Germany, France, and the Euro-area may not be enough to shake the EUR downtrend as EUR/USD continues to press new lows."
"The sharp decline in EUR/USD following the ECB’s announcement, despite the EUR-lower view seemingly being largely consensus and well-owned, suggests that the “pain trade” in EUR may actually be toward lower levels. Put another way, investors may be awaiting a “sell the fact” EUR positioning squeeze to enter into EUR shorts at better levels that hasn’t come."