Recap : More on the EUR


How much of the EUR sell off is due to speculators reacting to ECB statement? They may be the largest driver, according to Citi – and they may be wrong.

As I’ve noted before, with the correlation between interest rates and the currency close to zero, the key question for the future direction of the currency is now how interest rates move, but how the ECB meeting are likely to affect portfolio flows. And it’s hard to make an argument that a 15bp cut will make much of a difference. In fact we got a test of the durability of enthusiasm for EUR periphery assets a couple weeks ago, following the weak GDP print. And after a correction lasting just 5 days, periphery yields are now back near the all time lows that printed early this month. With momentum strong, and the consensus view continuing that spreads remain attractive in this low vol environment, it is hard to believe that even a dovish surprise out of the ECB will provide much of a catalyst for FX weakness. What may be needed first are clearly overpriced Euro-denominated assets – which are still quite rare at the moment.


  • Toll Brothers on the housing market: "demand over the past year has been solid, although relatively flat, compared to the strong growth we initially experienced beginning in 2011, coming off the bottom of this housing cycle. We note that last cycle’s recovery, in the early 1990’s, began with a period of rapid acceleration, followed by leveling, before further upward momentum. We believe that we are in a similar leveling period in the early stages of the housing recovery with significant pent-up demand building… according to the April 2014 U.S. Census Bureau’s New Home Sales Report, new home inventory stands at just 5.3 months’ supply, based on current sales paces. If demand and pace increase, the 5.3 months’ supply could quickly be drawn down. Current demographics seem to suggest that new home sales should pick up. If the tight supply bumps into increasing demand, prices could rapidly rise."

Upcoming Data:

  • Wed: Australia Private CapEx
  • Thu: Canada Current Account, US Jobless Claims, US Pending Home Sales, New Zealand Building Permits, UK Gfk Consumer Confidence, Japan Unemployment, CPI
  • Fri: Month End, Canada GDP, US Personal Income, Core PCE Deflator, Chicago PMI,
  • Weekend: China Mfg PMI, AU Mfg PMI, Building Approvals, Japan Capital Spending, PMI,
  • Mon: UK PMI, GermanyCPI, US ISM
  • Tue: RBA, UK Nationwide House Px, EU Unemployment, CPI, Turkey CPI, Australia GDP,
  • Wed: EU Services PMI, US ADP Employment, BoC, US ISM Non-Mfg, Australia Trade Balance, HSBC Services PMI

4 thoughts on “Recap : More on the EUR

      1. xccy swaps show level of confidence in repaying money market debt, but I don’t know whether it can be attributed to heightened risk or just lower interest rates in EU due to deflation

        1. Right – hard to say, and thanks for pointing it out. My interpretation is that they are retracing now as excess liquidity has been drained, in conjunction w/ Eonia lifting off zero. Not totally sure, though. Could be some EU banks adjusting their funding sources ahead of the AQR also, among other things.

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