Kit Juckes, Macro Strategist at Société Générale, explains why EUR/JPY is a better short than EUR/USD.
Key Quotes:
“Nordstream 1 flows are expected to halve to 20% of capacity, down from the 40% they were at yesterday. Economists are scrambling to update estimates of the economic impact, but two things are clear, one bad and one slightly more encouraging. The first is that growth is going to be substantially slower than expected. The second is that the response has been significant in terms of building capacity to import LNG from the US, reduce demand, and find other sources of energy (Germany is even talking about restarting nuclear power plants).”
“When asked in early June where the euro could fall to if gas flows to the Eurozone were stopped, we estimated that a fall to 0.9-0.95 was feasible. The amount of work that has already been done to help soften the economic blow makes that look a little too pessimistic, even if a period in a 0.90-0.95 range still seems likely over the next month or two.”
“Given positioning (very long USD, and short the European currency bloc), I don't think EUR/USD shorts are that attractive right now. The market fully expects a 75bp hike from the FOMC this evening, and the market's torn 50/50 as to whether we get 50bp or 75bp in September. It isn't obvious that the FOMC meeting should have a major impact on risk sentiment or provide much support for the dollar. So, EUR bears would still do better to look at EUR/JPY, which has only risen in 6 of the 22 Augusts since 1999.”
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