Run Euro Run !

The euro’s rally may have only just begun.

While the European Central Bank made few changes Thursday to its forward guidance and Mario Draghi said that policy makers were still waiting for wages and prices to match the region’s improving economic growth, the common currency rallied to its highest level in nearly two years.

It’s the best performer among Group-of-10 currencies this year and could still have further to run with the bank likely to announce the scaling back of its quantitative easing program in either September or October.

“It’s an armor-plated rally and it won’t stop,” Peter Kinsella, a London-based senior foreign exchange and rates strategist at Commonwealth Bank of Australia, wrote in a note. “Everything speaks in favor of further EUR appreciation — increasing portfolio inflows, changing monetary policy, improved political risks.”

Increased hawkishness from the central bank, spurred by Draghi saying that reflationary forces had replaced deflationary ones on the continent, has helped the euro rally from lows last seen near the start of the millennium. Investors expect the ECB to start tapering in the new year and are pricing in a 10 basis point rate hike by September 2018.

At the same time, political risks have largely dissipated. The victory of market-friendly Emmanuel Macron in France allayed fears after a populist wave swept through the European Union following the Brexit vote and the election of Donald Trump as president of the U.S. Economic growth has also picked up, helping to buoy investor prospects.

The euro broke through $1.16 after Draghi said that the currency’s recent re-pricing had received “some attention,” without specifically saying he was concerned about its strength, at the press conference following July’s ECB decision. That reference helped boost the shared currency, while European bonds rallied following the meeting led by those of Spain and Portugal.

Mario Draghi “essentially did not push back on the market pricing, which was the key point,” said Jordan Rochester, foreign-exchange strategist at Nomura International in London. “The Fed was moving more aggressively in terms of their monetary policy while other banks were still easing. All that’s come into reverse now,” he added, referring to the Federal Reserve’s recent rate hikes.

The euro advanced 0.1 percent to $1.1642 as of 8:49 a.m. in London, having touched $1.1677, its highest since August 2015. The currency has climbed about 11 percent this year, partly on speculation that a tapering of bond purchases is drawing closer. It traded near its highest versus the pound in eight months with one euro worth 89.59 pence.

Nomura currently forecasts the euro at $1.15 by the end of the year. “In the short-term we’re overshooting and I wouldn’t fight it,” Rochester said.

For some analysts, the only thing that can stop a prolonged euro surge is events on the other side of the Atlantic. That could come in the form of progress of U.S. tax reform, according to Rochester.

“One factor that might stop the euro rally from here is a repricing of expectations for the Federal Reserve,” said Andrew Cormack, a London-based money manager at Western Asset Global Management. “There is so little priced for the Fed now any upside surprise in the data could see this reverse.”

Cheerio

The Wig and Pen Club shares information with MF Solutions Ltd

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Why People Avoid Nordic Banks

Nordic banks, long considered among the safest in the world, are losing their appeal as an investment target as lenders further south start to look more attractive, according to PineBridge Investments, a multi-asset manager that oversees about $85 billion.

Graeme Bencke, the portfolio manager who heads equity strategy at PineBridge in London, says the circumstances that made banks in Sweden, Denmark, Norway and Finland a “good investment in the post-crisis period” no longer exist.

“Now, we’re in more of an upswing and a lot of the European banks that had been in trouble, southern European in particular, are now starting to see an incremental improvement,” Bencke said in an interview in Stockholm. “So there’s a much bigger inflection point in valuation in those banks than there is in the Nordics. That’s kind of keeping us away from the Nordic banks.”

Investors have so far stayed loyal to banks in the Nordic region, where prosperous and stable economies have been relatively unscathed by the wave of financial shocks to have hit since 2008. Nordic lenders have also tended to take a more cautious approach on capital adequacy. But that investor loyalty has driven up valuations, potentially leaving less room for price gains.

Sweden’s four biggest banks are all in the top half of Bloomberg’s index of European financial stocks, based on price-earnings ratios for next year. Nordea Bank AB, the biggest Nordic lender, has seen its share price soar about 50 percent over the past 12 months, compared with a roughly 35 percent increase in the Bloomberg index.

Meanwhile, banks further south are starting to emerge from years of trouble. In Spain, Banco Santander SA’s recent takeover of Banco Popular Espanol SA (a key test of European resolution rules) shows southern Europe’s banks are successfully dealing with their weakest links. (Though Italy is still trying to figure out how to handle its struggling banks.)

“Southern European banks in particular have a lot of problem assets which had been aggressively marked on the books,” Bencke said. “These banks are now able to offload some of those problem assets at losses that are smaller than the losses they’ve already taken. So we’re starting to see again, assuming the recovery continues, it’s quite a good inflection point for those banks with more difficult assets. Which is something the market’s been waiting for for years.”

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Today’s FOREX Trades

EUR/USD Intraday: towards 1.1280.
Pivot: 1.1210

Our preference: long positions above 1.1210 with targets at 1.1265 & 1.1280 in extension.

Alternative scenario: below 1.1210 look for further downside with 1.1170 & 1.1145 as targets.

Comment: the RSI is bullish and calls for further upside.

USD/JPY Intraday: supported by a rising trend line.
Pivot: 111.45

Our preference: long positions above 111.45 with targets at 111.90 & 112.20 in extension.

Alternative scenario: below 111.45 look for further downside with 111.10 & 110.80 as targets.

Comment: the RSI is bullish and calls for further upside.

GBP/USD Intraday: continuation of the rebound.
Pivot: 1.2960

Our preference: long positions above 1.2960 with targets at 1.3005 & 1.3020 in extension.

Alternative scenario: below 1.2960 look for further downside with 1.2925 & 1.2900 as targets.

Comment: the RSI is mixed with a bullish bias.

 

As well as these current currency plays we remain bullish on both gold and silver.

 

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

 

Current Currencies

EUR/USD Intraday: the upside prevails.
Pivot: 1.0905

Our preference: long positions above 1.0905 with targets at 1.0945 & 1.0960 in extension.

Alternative scenario: below 1.0905 look for further downside with 1.0885 & 1.0870 as targets.

Comment: the RSI lacks downward momentum.

USD/JPY Intraday: bullish bias above 111.75.
Pivot: 111.75

Our preference: long positions above 111.75 with targets at 112.30 & 112.55 in extension.

Alternative scenario: below 111.75 look for further downside with 111.55 & 111.20 as targets.

Comment: technically the RSI is above its neutrality area at 50

 

GBP/USD Intraday: under pressure.
Pivot: 1.2950

Our preference: short positions below 1.2950 with targets at 1.2880 & 1.2860 in extension.

Alternative scenario: above 1.2950 look for further upside with 1.2965 & 1.2995 as targets.

Comment: the RSI is mixed to bearish.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

 

Le Pen Writes Off Euro

The euro will tumble to a 15-year low if Marine Le Pen becomes French President, with the immediate reaction in the currency similar to that seen in the pound following the U.K.’s Brexit vote, according to economists.

The shared currency would drop to $1 or below a day after a victory for the National Front leader, according to 23 of 38 respondents in a Bloomberg survey, with five of those calling for a decline below 95 U.S. cents. A Le Pen victory is seen causing such a rapid decline because the anti-European Union candidate has threatened to call a referendum on the euro and re-denominate the nation’s debt.

A decline to parity for the first time since 2002 would be a fall of more than 7 percent from the current level of about $1.08, while a move below 95 cents would represent a decline of around 12 percent. Such a move would mirror the reaction seen in the pound following the U.K.’s decision to leave the EU, and reinforce an emerging trend of currencies taking the strain for political upheaval.

In a similar survey before the Brexit referendum last year, the majority of economists forecast a drop below $1.35 in the event of a decision to leave, a call that was borne out after the vote as the pound slumped more than 10 percent to a 31-year low of $1.3229.

“The market reaction would be very negative since re-denomination risks have been priced in only to a very modest extent,” said Frederik Ducrozet, an economist at Banque Pictet & Cie in Geneva, who expects the euro to drop below parity after a Le Pen victory.

A Le Pen victory is seen as unlikely, with the economists surveyed assigning a 61 percent probability that independent candidate Emmanuel Macron will become the next president, compared with just 20 percent for Le Pen.

Cheerio

The Pinstripe and Bowler Club shares information with MF Solutions.