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Forex Flash: Capital flight abounds in Eurozone – UBS

FXstreet.com (Barcelona) - According to Research Analyst Gareth Berry at UBS, “We expect that the theme of capital flight out of the Eurozone will continue to run for some time in the wake of the Cyprus bailout.” The immediate focus, of course, is on deposit flight but capital controls will be expected to do their job for now. Of course, the images of bank runs and deposit flight are powerful, but we expect capital flight in the form of investment outflows is even more pernicious.

Deposit flight exposes funding gaps on a banking-sector level, but capital outflows, be they via portfolio flows or FDI reversals, tend to expose the funding gaps of an entire nation, a fact that emerging markets can strongly attest to. As timely data is still rather difficult to come by, we use our Equity Flow monitor from last week to see if asset managers are now liquidating underlying investments in the Eurozone, especially taking into account that our FX Flow Monitor has been showing such trends for several weeks.

Unsurprisingly, the Eurozone suffered the most out of all G10 markets we track, but the distribution of selling was even more troubling. Eurozone-based clients actually registered flat net flow - i.e. repatriation back to the Eurozone offsets their overseas interest. However, for non-Eurozone based investors it was one way: the US and UK both registered strong inflows last week but almost all of the buying came from their own clients leaving the Eurozone. “If past history is anything to go by, the Eurozone's funding gap may widen further and it's the real economy, beyond the banks, that will suffer.” Berry warns.

Forex: EUR/GBP rises to 0.8479 after German CPI

The EUR/GBP was cornered between 0.8426 and 0.8450/60 area during the London morning but the publication of the preliminary release of the CPI report in Germany triggered a breach of the upper band, allowing the print of a daily high at 0.8479. Besides of the annualized headline figure, at 1.4% in March, data came in higher than expected.
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Forex Flash: USD/CAD may target 1.0080/90 near-term – TD Securities

“Fresh short-term cycle lows keeps the focus on the downside for USD/CAD in the short-term, at least”, said analysts Shaun Osborne and Greg Moore, adding that the loss of support in the 1.0180/85 area implied a market that would likely transition from better buyers of USD dips to better sellers of USD strength. “With the market clearly struggling to regain the upper 1.01 area in the past few days and short term trend momentum signals (1-hour, 6-hour and daily) all aligned bearishly, we expect more losses for the USD to accumulate from here”, they continued, indicating short-term resistance at 1.01070 and doubting the market will have the legs to retest 1.0185 for some time. “Look to sell modest USD rallies. We target a drop to 1.0080/90 near-term but losses may extend beyond that”, they concluded, also thinking there is a good chance that the market will retest the par area (200-day MA) in the next few weeks.
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