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19 Jun 2013
Flash: EUR/USD correlated to EM flows – Nomura
FXstreet.com (London) - Strategists at Nomura, Jens Nordvig and Ankit Sahni, said that they are observing an unusual type of dollar schizophrenia.
They said this is involving it's significant strength versus most emerging market currencies and sizeable USD losses versus major currencies. For example, they note that the dollar is 3.8% weaker in the Fed‟s major currency index (G10) and about 2% stronger in the EM index over the past two weeks.
They continued to mention that inflows into EM fixed income had reached a very high level, making these markets vulnerable to a reversal. They said that looking at country allocations within high frequency EPFR data, we see that bond flows from the eurozone to EM bonds reached their highest level in history by mid-May.
By their estimates, total fixed income flows from the eurozone to EM between September 2012 and mid-May were about $90bn. They note the reversal over the past three weeks has been small relative to the inflow (~$10bn), indicating that the unwind could have more room to run. “This continued unwind of short EUR/EM positions could also help explain the price action in EURUSD ”.
They said this is involving it's significant strength versus most emerging market currencies and sizeable USD losses versus major currencies. For example, they note that the dollar is 3.8% weaker in the Fed‟s major currency index (G10) and about 2% stronger in the EM index over the past two weeks.
They continued to mention that inflows into EM fixed income had reached a very high level, making these markets vulnerable to a reversal. They said that looking at country allocations within high frequency EPFR data, we see that bond flows from the eurozone to EM bonds reached their highest level in history by mid-May.
By their estimates, total fixed income flows from the eurozone to EM between September 2012 and mid-May were about $90bn. They note the reversal over the past three weeks has been small relative to the inflow (~$10bn), indicating that the unwind could have more room to run. “This continued unwind of short EUR/EM positions could also help explain the price action in EURUSD ”.