EUR trading like a high-beta currency - AmpGFX

EUR is trading like a high-beta currency, more positively correlated with equity performance and investor confidence than would normally be the case for a low yielding current account surplus currency explains the research team at Amplifying Global FX Capital.

Key Quotes

“In a low yield environment globally, capital appears to have been drawn more to equities in general, and investors have paid less attention to interest rate differentials and hedging costs.”

“EUR has probably benefitted from unhedged equity inflow and is vulnerable to a correction in equities.  The market is also net long EUR and, in a risk-off environment, position squaring and deleveraging is likely to see EUR selling.”

“If the correction in tech stocks in recent sessions builds and undermines equities more generally it is possible to see a bigger correction lower in the EUR, despite its improving economic and political outlook.”

“The Euro STOXX index peaked on 5 May, just ahead of the second round of the French Presidential election of Macron.  European equities have struggled in the last month, and this may help explain some stalling in the EUR in recent weeks.”