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23 Jan 2015
Portfolio rebalancing into ECB purchases, short EUR via a basket – Nomura
FXStreet (Barcelona) - The Research Team at Nomura suggest going short EUR on a equally weighted basket of PLN, HUF, GBP and USD, and also long USD/JPY to rebalance portfolio into ECB’s purchases.
Key Quotes
“The key question is how the portfolio rebalancing from the ECB's purchases will propagate through the system. Since many European investment managers have greater discretion in allocating between European countries than to other global assets, one could argue that the portfolio rebalancing may be more impactful in relation to cross-border flows into other European markets than non-European markets.”
“At the same time, the entry point for short euro positions versus other European currencies is attractive, as ECB easing over the past year has been countered by easing in Poland and Hungary. At the same time, we don't think other central banks in the European region will remain able to 'out-ease' the ECB in 2015, as was the case in 2014.”
“All told, we like to trade the Euro short on a basket basis. Specifically, we recommend and equally weighted basket of PLN, HUF, GBP and USD.”
“We also took the opportunity to enter fresh positions in long USD/JPY. We judge: 1) monetary policy divergence between the US and Japan; 2) the strong portfolio shift by Japanese investors; and, 3) weak external balance, as key drivers of JPY weakness. Monetary policy divergences are likely to be more significant, re-accelerating JPY weakness”
Key Quotes
“The key question is how the portfolio rebalancing from the ECB's purchases will propagate through the system. Since many European investment managers have greater discretion in allocating between European countries than to other global assets, one could argue that the portfolio rebalancing may be more impactful in relation to cross-border flows into other European markets than non-European markets.”
“At the same time, the entry point for short euro positions versus other European currencies is attractive, as ECB easing over the past year has been countered by easing in Poland and Hungary. At the same time, we don't think other central banks in the European region will remain able to 'out-ease' the ECB in 2015, as was the case in 2014.”
“All told, we like to trade the Euro short on a basket basis. Specifically, we recommend and equally weighted basket of PLN, HUF, GBP and USD.”
“We also took the opportunity to enter fresh positions in long USD/JPY. We judge: 1) monetary policy divergence between the US and Japan; 2) the strong portfolio shift by Japanese investors; and, 3) weak external balance, as key drivers of JPY weakness. Monetary policy divergences are likely to be more significant, re-accelerating JPY weakness”