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Forex Flash: Europe´s Japanification - Societe Generale

FXstreet.com (Barcelona) - Sebastien Galy, Senior FX Strategist at Societe Generale notes that the downside in EUR/USD is rising.

He begins by writing, “1.28 and then 1.26 would be what our models would see as attractors. We continue to sell EUR/GBP topside to finance it. Downside protection in USDJPY continues to make sense. Our USD/CAD short still hasn't kicked in waiting for bad news at the 1.0450 level.”

He feels that the case for ECB easing is rising rapidly and the problem with recession in Europe when savings have been balkanized is that those most in need of lower rates suffer the most. He adds that they pay an even higher risk premium in such an environment and if the core slows down even more sharply than expected (PMIs were poor this morning), then the tendency for capital to stay south will only increase. He suspects that more will probably be heading for the US and some EM. He writes, “Add to this higher precautionary savings (third degree of the utility function kick in for larger chocs), following the decision to tax insurable deposits in Cyprus and you have all the right conditions for the ECB to ease further. This should steadily pressure the EUR/USD range higher.”

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