3 reasons to be bearish Euro – Nomura

By FXStreet Bilal Hafeez, Research Analyst at Nomura, suggests that recently, the euro saw an intra-day high of 1.1616 – while not quite as high as the 1.1714 high seen in August last year when equity markets plunged, it has nevertheless challenged our bearish euro view.

Key Quotes

“Despite this spike, we maintain a bearish view on the euro. We would add three more euro bearish factors:

1) When risk appetite improves the euro will head down. The euro has clearly become a risk-off or safe-haven currency. The correlation between European stocks and the euro is heavily negative. A likely explanation is that when stocks sell off, euro-area investors hold off from investing abroad. Recent poor US data, the USD/JPY collapse and low market liquidity owing to public holidays in the UK and Japan have contributed to risk aversion over the past week. But these are likely to be transitory factors – strong US jobless claims data point to healthy payrolls later this week, the yen is unlikely to see as sharp gains with the BOJ meeting behind us and market liquidity is starting to normalise.

2) The euro is too high compared with real rate spreads. At the very least this limits …read more

Source:: FX Street