British Pound Sterling | Currency News Views and Outlook
'Theme fatigue' means pound to euro is a Sell as Deutsche Bank turn 'tactically bullish' on EUR
- Details
- Category: British Pound Sterling
- Published on Monday, 06 August 2012 10:46
- Written by Sam Coventry
Three reasons why it could be time to start backing the euro against the US dollar and the British pound.
The pound euro exchange rate (Currency:GBP) is a Sell at Deutsche Bank who have told clients they are turning 'tactically bullish' on the euro.
The recommendation comes as Deutsche also recommend closing out short euro dollar positions. (Our sister site IMT suggests two spread trading firms that are ideal for taking positions on the currency markets).
The client note says:
"Tactically buy EUR vs ZIRP currencies. Target 1.27 in EUR/USD, 100 in EUR/JPY and 0.81 in EUR/GBP. We closed out our short EUR/USD trade recommendation as we approached 1.20 last week. It's now time to turn tactically bullish EUR vs the other ZIRP currencies: USD, JPY and GBP. We have become more optimistic in the near-term for three reasons."
The first reason to back the euro lies with the ECB and the willingness of Draghi and his team to try new strategies.
"We believe Draghi's press conference was one of the most important policy-making decisions taken so far in this crisis. A new intervention tool is in the making which creates unlimited firepower to defend European sovereigns while removing seniority concerns," says George Saravelos at Deutsche Bank.
Saravelos also argues that the market has overshot the market with its bearish view on the single currency, indeed, positioning on the short side remains crowded.
Indicators give a message of extremes in both positioning and sentiment. Saravelos says:
"Both IMM positioning and dbSelect show shorts close to or at all-time highs. The risks are therefore biased towards upside surprises in coming months and the market diversifying its shorts towards a more balanced portfolio of ZIRP currencies."
There is also the theory that the Eurozone debt crisis 'theme' will increasingly be ignored, and this is bad news for the dollar and pound sterling:
"We are now at levels typically associated with "theme fatigue", suggesting that the odds are now that market themes change. Our G10 FX regime machine provides a good guide as to what matters outside of Europe: currencies with the largest current account deficits and weaker growth prospects are suffering at the expense of others.
"This would suggest that GBP is the most vulnerable due to weak growth and a large current account deficit, closely followed by the USD on the back of the still large negative basic balance of payments," says Saravelos.
