EUR USD (1.2770) One of the principal impediments for a struggling peripheral eurozone country, argued economists last year, was that it did not have its own money: it could not print it, embark on QE, nor devalue it. In the meantime, though, the ECB has the LTRO, which is a variation on the QE theme and continues to buy secondary market sovereign debt. The euro is also on a resolute downward path, losing now 15 percent from last year’s peak and trading at a 16-month low versus the USD and the GDP, and an 11-year nadir versus the JPY. Yet, few highlight the development as positive for the eurozone; the outlooks are as gloomy as ever. Jean-Claude Trichet is no longer at the ECB head, but even if he were, we doubt that he would be talking about a ‘brutal’ decline. On the contrary, the only statement from the ECB so far (Klaas Knot) was conspicuously relaxed.
Yesterday’s ADP forecast for the US non-farm payrolls seemed ‘too good to be true’ in the eyes of most market participants. Various reasons were offered as to why the suggested job gains were exaggerated, not least, the December aberrations. Regardless of how the jobs number turns out, we do not believe that it will durably change the trajectory of the euro which, in our view, is driven by longer-term capital outflows. The risk of a drift to 1.2675 remains and, below there, a continued slide to 1.2490. No reliable stabilisation looks possible this side of 1.3080.
Market Bias Index TM
The current biases are shaped by the generalised weakness of the euro and by the tenacity of the SNB in its defence of the EUR/CHF parity.
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