Risk-on as euro outlook continues to stabilize
The euro remains surprisingly strong, probably still benefiting from short-covering previous very stretched, negative positioning in the currency. This situation is likely to continue for some time yet with the Euro-zone at least temporarily stable due to Greece being no longer in focus and European banks apparently possessing sufficient funding for coming quarters. Global reserve managers are also most probably back buying the EUR as an alternative to the current predominant role of the USD as the global reserve currency. In a speech yesterday Fed chairman Bernanke also provided some support for the idea that the US central bank will provide additional stimulus if the recovery flags, especially with the labour market surprisingly strong given still modest US economic growth. Finally Chancellor Angela Merkel indicated yesterday that she is willing to back plans to run the EFSF and ESM in parallel, a topic to be discussed further at the upcoming eurogroup / ecofin meetings this Friday. We remain cautious regarding the long-term outlook for the euro; after all only the liquidity problem has been resolved while solvency issues clearly remain.
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SEB tech team