Yen-Yield Unwinding & Kiwi Carnage
Yields and stocks continue their divergence at the expense of the higher yieldimng currencies, specifically NZD, which is the biggest underperformer of the last 2 days. The notion that Sunday's European parliamentary elections boosted Eurosceptic parties in France and the US is weighing on the euro on the argument that the ECB will have to do most of the work in the way of reforms is not shared by Fitch. The credit rating agency said in a note today the EU elections from Italy, Spain and Greece and Portugal were largely pro-Euro and that fiscal and economic reforms are on track. Italy's centre left PD victory over populist and centre right parties is an outright vote for maintaining the current reform agenda on track. The victory of Spain's centre right PP implies no change as the party has been in power since 2011, vocally calling for fiscal tightening and creation of bad bank. Questions may arise in Portugal & Greece, where the pro-reform incumbents, but Fitch sees there has “not been a large electoral backlash against fiscal and economic reform”. In this week's Premium Insights, we affirmed our EURAUD and AUDUSD trades by issuing 3 new charts. We hold fire on EURUSD, while seeing USDJPY short of May 15 reentering the green. Our May 13 NZDUSD short hit its final 0.8500 target from the 0.8640 entry, while gold has been stopped out. GBPUSD trades remain in progress. All details are in the Premium Insights.
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