Back
30 Apr 2013
Forex Flash: Hopium v Reality - Societe Generale
FXstreet.com (Barcelona) - Sebastien Galy, Senior FX Strategist at Societe Generale notes that the lower than expected inflation in Europe and fairly appalling youth unemployment numbers in the periphery implies lower yields and hence a rush into eurusd, under the Hopium induced logic.
However, blow away the fumes and it suggests a rapid japanification with a Bundesbank at the core which does not see the ECB as the lender of last resort. He feels that the battle between hopium and the nihilist crowd has been one sided thankfully, somewhere between the two lies reality.
He comments that the EUR/USD level may be fine for Germany, but is obviously too high in the periphery given the rapid drop in growth there (e.g. retail sales in Greece). Once again he sees that EUR/USD can't hold a high and this time at much lower levels than in past years when it fell repeatedly at the seams. He writes, “Eventually, the squeeze in short eurusd will be over and the rush into BTP will fade. I will be watching the lowest tranches of credit in the US relative to historical default probabilities and momentum into BTPs and peripheral financials as signs that the fumes are slowly dissipating, revealing another bump in the road.”
He feels that we are not heading for a Lehman like moment of global deleveraging, but a series of bone jarring thuds (local bubbles) along an otherwise beautiful scenic road. It is the same feeling you get when visiting the wildlife reserve somewhere in central africa. “The beautiful ride leaves you happy you didn't fall into any sinkhole, happy the lion no one told you about was busy on a gazelle and you didn't get caught on the way back by a friendly act of spontaneous local taxation on the road back. Otherwise it was a wonderful trip.”
However, blow away the fumes and it suggests a rapid japanification with a Bundesbank at the core which does not see the ECB as the lender of last resort. He feels that the battle between hopium and the nihilist crowd has been one sided thankfully, somewhere between the two lies reality.
He comments that the EUR/USD level may be fine for Germany, but is obviously too high in the periphery given the rapid drop in growth there (e.g. retail sales in Greece). Once again he sees that EUR/USD can't hold a high and this time at much lower levels than in past years when it fell repeatedly at the seams. He writes, “Eventually, the squeeze in short eurusd will be over and the rush into BTP will fade. I will be watching the lowest tranches of credit in the US relative to historical default probabilities and momentum into BTPs and peripheral financials as signs that the fumes are slowly dissipating, revealing another bump in the road.”
He feels that we are not heading for a Lehman like moment of global deleveraging, but a series of bone jarring thuds (local bubbles) along an otherwise beautiful scenic road. It is the same feeling you get when visiting the wildlife reserve somewhere in central africa. “The beautiful ride leaves you happy you didn't fall into any sinkhole, happy the lion no one told you about was busy on a gazelle and you didn't get caught on the way back by a friendly act of spontaneous local taxation on the road back. Otherwise it was a wonderful trip.”