ING analysts suggest that away from the FX options market, the Eurozone Balance of Payments story should, in theory, be a little more positive for the EUR.
“The Eurozone still runs a large current account surplus (2.7% of GDP) and instead of this being re-cycled out of the Eurozone via Direct Investment and Portfolio outflows – which was certainly the case over the last couple of years – these outflows have declined markedly.”
“For example, on a twelve-month basis Eurozone direct investment outflows of EUR180bn have reversed to EUR85bn of inflows over the last year. EUR211bn of portfolio investment outflows have reversed to EUR15bn of inflows over the period.”
“We’d characterise most of this activity as ‘de-leveraging’, where Eurozone residents have cut overseas investments in a more significant number than foreigners have cut investments in the Eurozone. In theory that should have been positive for the EUR, but it clearly hasn’t. We think ‘hot money’ or short-term money market flows explains a lot.”
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