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.”
This post was published at Zero Hedge on May 31, 2017.