EUR and European currencies have historically performed well in December, although without any stunning hit ratios. On the other hand, JPY is usually weak towards year-end, notes Credit Suisse.
Such patterns, according to CS, point to very high stakes for EUR/USD and USD/JPY into year-end.
"In December liquidity seasonally tightens, positioning tends to be squared and the euro area current account surplus is also seasonally strong. But Draghi’s well-timed statements now signal imminent ECB easing (our economists expect to see a framework for sovereign QE outlined at the 4 December ECB meeting)," CS clarifies.
"The stakes are therefore even higher than normal heading into the ECB meeting. This makes the euro area flash inflation estimate on 28 November a key data release for the market, in our view," CS argues.
How to position?
"Given that we expect the ECB to announce new QE, we stick to our longstanding short EUR view going into December. However, if Draghi disappoints, EUR shorts could become a 'painful' position. And while we ultimately would use EURUSD upside to establish new shorts, we would be cautious in the interim in such a scenario," CS advises.
"Meanwhile, short JPY positions, at least on this measure, could have an easier ride through the end of the year," CS projects.
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