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Fundamental Afternoon Wrap: EUR capital flows climb & BoJ proposals loom

On a quiet day in a quiet week in FX land, we have taken a look across this afternoons institutional research and not a distinct theme; namely that there is no theme. Analysts look to be using the lull to comment on particularities in the market or expand on political rhetoric from this morning.


Today´s ZEW survey zooms from 31.5 to 48.2 this morning, with Brown Brothers Harriman analysts noting that this is the highest reading since April 2010. They feel that after the recent slip, the German economy is growing again. Nomura strategists Matthew Slade, Jens Nordvig and Charles St-Arnaud note that Euro area December capital flows remained robust, totaling EUR 33.4bln, most of which was targeted at Equities at EUR 29.4bln. Nick Bennenbroek of Wells Fargo notes that the Euro is down despite the upward swing in German ZEW sentiment


Brown Brothers Harriman analysts note that despite the G7 & G20 meetings passing without open condemnation of Japanese currency strategy, they suspect that a private word would have been had, and hence we are now seeing the Japanese Finance Minister pushing back on talk of foreign bond buying and changing BoJ rules. Danske bank analysts note that the next BoJ Governor nominations are due to be put forward upon PM Abe´s return from his visit to the US. Junko Nishioka of RBS comments that a weaker Yen is unlikely to help improve the trade balance through a recovery in export competitiveness, and infact could expand it because import prices will rise. Nick Bennenbroek of Wells Fargo suspects that the Japanese were told to tone down the rhetoric at the G7 & 20 meetings, judging by the behavior of PM Abe and FinMin Aso.


Brown Brothers Harriman analysts note that there is much anticipation that the Fed is beginning to look for QE exit strategies. However, they write, “Given that the Fed announced the more than doubling of its outright long-term asset purchases in December, we think that it is far too early to take seriously exit talk, except of course in the broadest of terms, as it is always prudent to have well thought out exit strategies.” Charles St-Arnaud of Nomura comments that despite weak headline, the US fiscal cliff leads to strong safe haven flows while his colleague Geoffrey Kendrick is recommending targeting a long NZD/USD position for a variety of fundamental considerations.

Michaela Moran of BAML notes that the US is surging up the non OPEC supply list, with Canada and Brazil it hot pursuit, but that demand rationing continues in a supply constrained world. On a completely different note, James Knightley of ING has taken a look at the growing prospect of a Scottish exit from the UK and the dangers that may lay ahead for both the remainder, England, Wales and Northern Ireland and an independent Scotland who may find itself more isolated than it had previously imagined.

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