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•We remain broadly bearish on EUR as growth in the Eurozone looks tepid and the ECB is likely to lag the global tightening cycle. In the near term, sovereign concerns will continue calling into question the credibility and sustainability of the European Union. The confusion and mixed signaling we have heard over Greece highlights the troubles looming over the unified currency; as the EU’s issues are more structural rather than idiosyncratic in nature, the EUR should broadly continue devalue this year.
•We are currently short EUR against USD and scaled into a EUR/SEK short last week.
•We are becoming increasingly bullish on USD. As markets cast doubt on the growth recovery, the USD should benefit as a hedge against further risk aversion. Moreover, US growth and rate differentials still look favorable against the other G3 economies, and should keep USD fundamentally underpinned. Keep a close eye on the US GDP revision on the 26 Feb, as our own economists are looking for Q4 growth close to 6%.
• We hold USD longs against EUR, JPY and NZD, for an over 50% long USD exposure in our portfolio. This is our strongest conviction view.
G10 FX Strategy Views for the Week Ahead February 25, 2010
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