Euro Funded Carry Trades!
This time I have an update to the macro chart to show the impact of increased borrowing on the Euro as European banks continue to led abroad. The flows are very complex in nature but very easy to track, we have two major forces in play which will serve the main course for the theme in 2020.
I am expecting EUR to find a strong bid next year as we see a new chapter in growth differentials. This will act as a catalyst in the reversal of capitals flows from the euro area to the US and serve as support in EURUSD.
The risk to the thesis comes from European growth flopping next year, investors will therefore expect lower returns from the euro area and therefore European assets would sell off, weighing heavy on the currency.
Short-term threatening to enter into wide consolidation till year-end, price action eminent of strong support at current levels. I sense that a clean break of 1.11 is now being watched as the catalyst for fresh demand and am comfortable buying anything inside the 1.09xx handle, as opposed to chasing the breakout. Watching EURJPY through 120.70 for clues.
For the chart deck today we have:
(i) A quick review of the wave count we have been tracking in this leg:
(ii) While we can continue to comfortably lean on the long-term macro chart posted from 2018:
Risk assets continue painting a positive story with Equities marching higher, cyclicals outperforming defensives and small caps outperforming large caps. However, rates and commodities clearly were not copied into the email with global yields and industrials stuck in first gear. Recommend all to bookmark this as an early warning sign of what is coming in 2020.
Perhaps the most interesting highlight of all comes from EM FX which continues to underperform vs yields and equities. Those following the previous conversations from 2018 will remember we traded this theme before; the same mainstream media in 2018 are selling the 2020 story as domestic EM related problems - well we know from experience in 2018 that these issues soon turned out to be a global pandemic.
Thanks all for keeping the likes and comments coming.
I am expecting EUR to find a strong bid next year as we see a new chapter in growth differentials. This will act as a catalyst in the reversal of capitals flows from the euro area to the US and serve as support in EURUSD.
The risk to the thesis comes from European growth flopping next year, investors will therefore expect lower returns from the euro area and therefore European assets would sell off, weighing heavy on the currency.
Short-term threatening to enter into wide consolidation till year-end, price action eminent of strong support at current levels. I sense that a clean break of 1.11 is now being watched as the catalyst for fresh demand and am comfortable buying anything inside the 1.09xx handle, as opposed to chasing the breakout. Watching EURJPY through 120.70 for clues.
For the chart deck today we have:
(i) A quick review of the wave count we have been tracking in this leg:
(ii) While we can continue to comfortably lean on the long-term macro chart posted from 2018:
Risk assets continue painting a positive story with Equities marching higher, cyclicals outperforming defensives and small caps outperforming large caps. However, rates and commodities clearly were not copied into the email with global yields and industrials stuck in first gear. Recommend all to bookmark this as an early warning sign of what is coming in 2020.
Perhaps the most interesting highlight of all comes from EM FX which continues to underperform vs yields and equities. Those following the previous conversations from 2018 will remember we traded this theme before; the same mainstream media in 2018 are selling the 2020 story as domestic EM related problems - well we know from experience in 2018 that these issues soon turned out to be a global pandemic.
Thanks all for keeping the likes and comments coming.
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