3 Sep 2013
Flash: Concerns for the Euro - BMO
FXstreet.com (London) - Stephen Gallo, Head of FX Strategy at BMO said “we need to start worrying about the euro again, and we need to start worrying about it now”.
Key Quotes:
“Syrian and Middle East tensions are likely to persist”.
“The outlook for Fed tapering will remain uncertain beyond September, and weak or negative reserve growth may also weigh on the EUR”.
“The number of potential triggers for EUR weakness and a partial European relapse appears to be growing, against a backdrop of persistent underlying issues which have been points of concern for us right the way through”.
“OMT is still a protective barrier for Euro Area credit markets and the value of the EUR. At more than a year old however, the “Draghi put” created by OMT has suffered from a substantial amount of “time decay”. With little or no tension in Euro Area credit or sovereign debt markets, the “Draghi put” is worth less than at the time it was proposed”.
“Underlying fundamentals probably dictate that the Draghi put should be worth more than it currently is, and the “Draghi put” can only be worth more if there is a re-pricing of credit spreads, risk premia and, by default, the EUR”.
“The euro is headed lower from here, and the reasons below (The Rationale) provide some detail as to why we think this will be the case”.
Key Quotes:
“Syrian and Middle East tensions are likely to persist”.
“The outlook for Fed tapering will remain uncertain beyond September, and weak or negative reserve growth may also weigh on the EUR”.
“The number of potential triggers for EUR weakness and a partial European relapse appears to be growing, against a backdrop of persistent underlying issues which have been points of concern for us right the way through”.
“OMT is still a protective barrier for Euro Area credit markets and the value of the EUR. At more than a year old however, the “Draghi put” created by OMT has suffered from a substantial amount of “time decay”. With little or no tension in Euro Area credit or sovereign debt markets, the “Draghi put” is worth less than at the time it was proposed”.
“Underlying fundamentals probably dictate that the Draghi put should be worth more than it currently is, and the “Draghi put” can only be worth more if there is a re-pricing of credit spreads, risk premia and, by default, the EUR”.
“The euro is headed lower from here, and the reasons below (The Rationale) provide some detail as to why we think this will be the case”.