* On a technical level carry looks attractive as our Style Allocation Model (SAM) indentifies a “risk on” environment and carry needs to catch up with the equity market.
*Fundamentally, the ECB removed some of the tail risk from EUR/USD (as evidenced by the EUR risk reversal) enabling currency investors to take more risk in H2 2012.
Following Draghi’s pledge to defend the euro market participants have shifted to “risk on” mode and pushed the S&P 500 through 1400 for only the second time since 2008. Meanwhile the FX carry trade (particularly EM) has lagged equities since Q4 2010 and may be a savvy “catch up” risk on trade in H2 2012 for both technical and fundamental reasons.
Click here to read the full report: Daily Forex 08.08.12
Deutsche Bank