"If You Blinked, You Missed The Euro Correction"

Tyler Durden's picture

As SocGen's Kit Juckes writes in his daily FX note, the currency market has been a "mess to end May", noting that the month is ending on mixed note, but the themes of the month are pretty clear: the Euro and its satellite currencies were the big winners this month, benefitting from decent economic data, reduced political risk and a focus on the ECB’s timorous exit from crisis policy settings. The big losers were the Brazilian real (politic) and Sterling (politics). In between that lot, the ZAR benefited from political optimism, NZD from higher milk prices, AUD suffered from weak iron ore prices and JPY has held up reasonably well, just as the dollar has struggled somewhat under the weight of depressed bond yields.

Looking at the Euro specifically, Juckes writes that the common currency rally is being slowed down by the build-up of big long positions, the gap between how far the currency has gone and the move in relative yields, and the rhetoric of the ECB President. All of which argue for buying a corrective dip which hasn’t really happened yet. The pull-backs so far have been modest, testimony to the underlying strength of the upward trend. EUR/JPY has disappointed of late, after rallying sharply from mid-April to mid-May, but it remains the most attractive Euro long other than EUR/GBP.

Further, the SocGen strategist higlights the importance of politics as a market driver which "can’t be overstated."

Perhaps that shouldn’t surprise anyone when the economic backdrop is relatively dull. This morning, the pound is the main victim again as a YouGov poll points to a possible hung parliament as the Conservatives risk losing seats in next week’s election. We're supposed to treat polls with suspicion but needless to say, we remain bullish of EUR/GBP even if I’ve lost my bet that it would trade above 0.90 by the start of this week. Market positioning is much cleaner now and relative yield trends are friendly.

And yet speaking of the euro, anyone who was waiting for a more sustainable correction may have missed their chance according to Bloomberg's Mark Cudmore who writes that "if you blinked, you missed the Euro correction." His full thoughts below:

Yesterday morning, my inbox was full with reasons to sell the euro. It duly traded sharply lower before subsequently ending the day higher. I think the correction may be over already. 


When the consensus is for a dip that everyone wants to buy into, that dip tends to be both brief and shallow. Further, the main fundamental reasons for a pullback were either negated or weak to begin with.


Reports in Germany that Greece would reject its next bailout payment were denied by the government. Dovish Draghi comments were countered by a Reuters report that the ECB’s statement will remove the mention of downside risks.


Just because Italy is close to approving a new electoral law doesn’t mean that early elections will definitely be called. It’s the Italian president’s prerogative and he is reported to be against the idea. Italy is a valid risk to be aware of but the shift this week was incremental and not too relevant.


In the wake of Tuesday’s disappointing German data, today’s Euro zone inflation print carries downside risks, but any related pressure on the euro may not sustain. Investors know that there’s no hint of runaway inflation in the euro zone and monetary policy isn’t the main reason to buy the single currency.


Instead, it’s the growth recovery story -- highlighted by BlackRock’s Larry Fink. The region’s latest manufacturing PMI was the highest in at least three years.


It’s also about the removal of tail-risk pricing. The euro zone has survived the worst that could be thrown at it and the narrative of the currency union breaking up is stale.


Euro implied volatility has slumped as a result – it’s now perceived to be the third-most stable G10 currency, after CAD and CHF, versus the dollar based on such metrics. The euro can be a haven currency again.


This combined narrative of growth and haven appeal is powerful, and flows should continue to be supportive for the euro over the medium term. A new 2017 high beckons.

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NoDebt's picture

I need more covfefe.


SmallerGovNow2's picture

"The euro can be a haven currency again."...

For idiots only...

Ghordius's picture

it would be very interesting to have had a second Greece to experiment on, and spare any thought about people and their suffering

one where Varoufakis would have won, and reintroduced the Drachma against the wishes of the majority of the Greeks, and perhaps defaulted or not, but in any case printed plenty of Drachmas in order to get things in a way a good Marxist like him would have liked

but hey, in the case Greece would have become something between Venezuela (without the oil) and Zimbabwe...

... this is ZH, after all. comments about Greece would have been vitriolic, starting from "Marxists don't know better" to "Morons"

meanwhile, in Greece the Tourist Season of 2015 was an unprecedented good one, followed by an even better 2016, and 2017 might soon look even better. all good tourist cash, in hard, hard euros, note

meaning that any Greek can "count on" his sparse pocket cash, is not exposed to ever-rising prices for everything, from the milk for his children to the oil that Greece has to import in order to function. price stabeeleetee, you know?

as a reminder, 65% of Greeks insisted on keeping the EUR. and now tourists spend exactly that, in Greece

bentaxle's picture

"....and reintroduced the Drachma against the wishes of the majority of the Greeks,"


Last time I looked the Greeks voted "Oxi" in a referendum 2 years ago. It was the Government that decided to ignore the people....i.e the majority of Greeks. 

I don't accept your reminder that "65%" of Greeks insisted on keeping the EUR. Greece should have another referendum on this matter to settle it.

rmopf2010's picture

As European I thought €uro was a winner, but years after the crisis hit hard, I realised EU is now full blown Comunism V2.0

The Socialism European voted for decades that led to Comunism V2.0 !!!!

Greece "Never before had so many people been hired by the state, with such salaries, pensions and benefits—to the point where the average government job paid almost three times the salary of the average private-sector job. An egregious but not isolated example was the national railroad company, which had annual revenues of €100 million against an annual wage bill of €400 million, on top of €300 million in other expenses. This is how the average state railroad employee came to earn €65,000 a year."



I can see lots of examples of this across ClubMed Countries, Now I ask why QEinfinity and NIRP ?

To sustain those "Big government jobs/Welfare state" votes ? private workers and companies are having a hard time to pay so many taxes and yet it is never enough!

IMO the greatest error of €uro is QE+NIRP, if states can't handle their voting promisses, they should not have cheap money, as you can see all ClubMed countries are only making accounting cosmetics to get ECB CHEAP Money


fx's picture

Do you seriously believe that crap with the majority of people and such? They have been relentlessly "argued" into expecting pure hell if they ever dared to leave the euro.
Guess what, since Tsipras, the bought-up coward-cum-puppet, surrendered to his Eurozone masters, greece has been an ongoing, ever bleaker looking mess. Pension cuts upon pension cuts with no end in sight, a 50% youth unemployment rate and now almost two subesequent generations that may be completely lost. greece in a decade or so will look even much worse than today with no hope to recover.

If the people had been told the truth, i.e. that staying in the euro would mean a decade plus of absolutely terrible hardship, back in 2010/11 - do you seriously believe they would have opted for it? Alas, nobody asked them and the only time they were asked and voted "OXI" their will was blatantly ignored by the "progressive" syriza traitors.
enough said, but if you like your pro-Euro propaganda bullshit, you can keep your pro-Euro propaganda bullshit.
Living in the eurozone myself, I know what I am talking about.
it#s a longterm disaster in the making and the only reason that the Euro hasn't totally collapsed yet is that the $, the Yen and the Yuan are basically in the same rotten shape - just at varying degrees and with different timelines.
And now you can go back and keep hailing this sucking currency called "euro" and your hero mr draghi

Ghordius's picture

fx, you seem to believe that Varoufakis would have steered Greece to sunny uplands? with a Marxist solution?

"Living in the eurozone myself, I know what I am talking about" seriously? is that an argument?

come on, state what your recipy would have been. there is enough rah, rah, spell out your solutions

defaulting does not bring hardship, too? ask countries that did exactly that

inflation and hyperinflation do not bring hardship, too? again, we have enough examples for such

complaining about "master this, master that" together with "traitor this, traitor that"... is not a solution, nor a better recipy

Ghordius's picture

wait, I thought that the EUR and "it's satellite currencies" all went down in flames, or something?

pass me the covfefe, spare the eurobonds

Haus-Targaryen's picture

Wait a second Ghordo, why don't you tell His Royal Highness, Darth Lord Draghi to quit handing out free fiat to the Italian government and let market fundamental take over? 

I mean, if the currency won't go down in flames and as stable as you'd want us to believe, allowing basic supply and demand to dictate yield should be a good idea no?  

Besides, you yourself said the Euro makes it harder for the bond vigilantes to shake a nation's sovereign debt like a rat terrier, prove it and take your foot off the gas.  

Ghordius's picture

ehmm... what is basic supply and demand... when it comes to fiat currencies again?

(the Global Reserve Currency Rules, remember? did you notice that the Russian National Bank is buying USTs? meanwhile, is the FED on a clear course? no? then Draghi is right)

price stability. period. now, show me the numbers if you think it there is not enough price stability in the eurozone

see that graph in the article? that's the "Poundland's" vagaries. FIRE economies prefer that. good for them, I suppose

Haus-Targaryen's picture

So "price stability" > the (cue hallelujah chorus) the Treaties > supply and demand for debt (not currencies, but debt instruments). 

Glad I understand your priorities. Price increases, nope.  Price decreases, no thanks.  Ghordo wants stability.

fx's picture

Draghi, the sumbag criminal goldman bankster belongs in jail, and you know that. Without goldman under draghi's chairmanship helping the corrupt greek govt to fake its finances, the greek euro tragedy would never have happened in the first place.
So and now you can go back, Ghordius, and continue to suck marios's dick

PontifexMaximus's picture

Draghi is and will fo god's work. Renzi and berlusconi will do the needful, that 5stelle will not have a my of a chance, same as macron did with marine in la grande nation.

gmak's picture

"The euro can be a haven currency again."

<< ... and we just happen to have a whole bunch that you can buy. Our pleasure. >>


Just more Covfefe from the Vampire Squids of the world.

besnook's picture

signalling a weaker dollar.

medium giraffe's picture

I covfefe'd my shorts.

Last of the Middle Class's picture

EXCELLENT article!!!!! Just one thing. Please add the last line "Due to massive banker intervention." The article would then be complete.

dunroamin's picture

Hey Tyler, if you think there is no runaway inflation in the euro-zone, you obviously haven't visited recently.

disagreeableness's picture

I had to close my eyes and imagine Ivanka, but eventually I managed to covfefe all over Kathy Griffin's face.....