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25 Apr 2013
Forex Flash: EUR/USD vs EU sovereign spreads, a regime shift taking place - Nomura
FXstreet.com (Barcelona) - The price action this week - sharp compression in sovereign spreads (in both Italy and Spain) but at the same time a clear move lower in EURUSD - is an example of a regime shift taking place, says Nomura.
Nomura notes: "In the short term, it could be noisy, because the US data picture is temporarily weaker. But the outlook for the growth differential is clear in our view. We have been getting involved in EURUSD downside through knock-in structures, which were triggered at 1.32. We now have a vanilla 1.28 6m put. Since we are not expecting a large move lower in the very near term, we are converting this into a put spread, by selling the 6-month 1.23 strike."
Nomura economists "now expect a 25bp refi cut in May (70% likelihood) after the weak PMI and Ifo data, however, given that the white-pack in the EURIBOR strip has already reacted by more than half of the move seen at the July rate cut (which included a cut in the deposit rate as well), we are unsure that a rate cut, should it materialize, will be a strong catalyst for EUR weakness."
Nomura notes: "In the short term, it could be noisy, because the US data picture is temporarily weaker. But the outlook for the growth differential is clear in our view. We have been getting involved in EURUSD downside through knock-in structures, which were triggered at 1.32. We now have a vanilla 1.28 6m put. Since we are not expecting a large move lower in the very near term, we are converting this into a put spread, by selling the 6-month 1.23 strike."
Nomura economists "now expect a 25bp refi cut in May (70% likelihood) after the weak PMI and Ifo data, however, given that the white-pack in the EURIBOR strip has already reacted by more than half of the move seen at the July rate cut (which included a cut in the deposit rate as well), we are unsure that a rate cut, should it materialize, will be a strong catalyst for EUR weakness."