EUR/USD: what drives the euro's downside?- Nomura
Analysts at Nomura explained, from a flow perspective, large selling of euro area bonds by reserve managers has been one of the drivers of EUR weakness under ECB QE.
Key Quotes:
"Increased negative euro area bond yields likely amplified their selling.
As the ECB makes progress on its normalisation, there should be fewer euro area bonds with negative yields, which should slow euro area bond selling by foreign investors.
The negative yield discount on EUR may be as much as 4-5%, which should disappear gradually.
The expected slowdown in fixed income outflows from the euro area should improve the mid-term flow picture, sustaining EUR appreciation into H2.
Monetary policy divergence should be also EUR/JPY positive, as we expect Japanese flows into the euro area to recover as well."
Author
Ross J Burland
FXStreet
Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.
