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23 May 2014
First cracks on Euro flow dynamics - Westpac
FXStreet (Bali) - The flow dynamics behind the Euro strength may be starting to show the first cracks, notes Westpac's FX Strategist Richard Franulovich.
Key Quotes
"The just released March Eurozone balance of payments data show the first cracks in what has hitherto been a very constructive underlying flow dynamic for the euro."
"Healthy flow trends into the Eurozone, comprising mainly a strong current account surplus and strong net portfolio inflows, have been key to the currency's resilience in the face a sharp shift in interest rate differentials against the currency and ECB rhetoric against currency strength."
"Our one month EUR/USD forecast in our Weekly ForeXfocus has been pegged at a fairly benign 1.36, even though the ECB is primed to unleash a package of easing measures in early June, mainly reflecting the supportive flow picture. However, if flow trends seen in March are sustained for another month or two we may be on the cusp of a bigger EUR decline."
"We won't get carried away with just one month of data. Moreover, some of the options in the ECB's policy easing menu, specifically those aimed at tackling fragmentation such as a targeted LTRO and/or a precommitment to buy private sector ABS paper down the road, may well encourage more inflows to the Eurozone. Time will tell."
"The bottom line is that if we see another month or two of less healthy basic balance trends for the Eurozone the medium term resilience of the currency may be living on borrowed time."
Key Quotes
"The just released March Eurozone balance of payments data show the first cracks in what has hitherto been a very constructive underlying flow dynamic for the euro."
"Healthy flow trends into the Eurozone, comprising mainly a strong current account surplus and strong net portfolio inflows, have been key to the currency's resilience in the face a sharp shift in interest rate differentials against the currency and ECB rhetoric against currency strength."
"Our one month EUR/USD forecast in our Weekly ForeXfocus has been pegged at a fairly benign 1.36, even though the ECB is primed to unleash a package of easing measures in early June, mainly reflecting the supportive flow picture. However, if flow trends seen in March are sustained for another month or two we may be on the cusp of a bigger EUR decline."
"We won't get carried away with just one month of data. Moreover, some of the options in the ECB's policy easing menu, specifically those aimed at tackling fragmentation such as a targeted LTRO and/or a precommitment to buy private sector ABS paper down the road, may well encourage more inflows to the Eurozone. Time will tell."
"The bottom line is that if we see another month or two of less healthy basic balance trends for the Eurozone the medium term resilience of the currency may be living on borrowed time."