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Forex Flash: EUR/USD vs EU sovereign spreads, a regime shift taking place - Nomura

FXstreet.com (Barcelona) - The price action this week - sharp compression in sovereign spreads (in both Italy and Spain) but at the same time a clear move lower in EURUSD - is an example of a regime shift taking place, says Nomura.

Nomura notes: "In the short term, it could be noisy, because the US data picture is temporarily weaker. But the outlook for the growth differential is clear in our view. We have been getting involved in EURUSD downside through knock-in structures, which were triggered at 1.32. We now have a vanilla 1.28 6m put. Since we are not expecting a large move lower in the very near term, we are converting this into a put spread, by selling the 6-month 1.23 strike."

Nomura economists "now expect a 25bp refi cut in May (70% likelihood) after the weak PMI and Ifo data, however, given that the white-pack in the EURIBOR strip has already reacted by more than half of the move seen at the July rate cut (which included a cut in the deposit rate as well), we are unsure that a rate cut, should it materialize, will be a strong catalyst for EUR weakness."

Japan Foreign bond investment down to ¥-199.3B in Apr 19 from ¥-176.3B

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Forex: GBP/USD pushing higher above 1.5250

GBP/USD is last at 1.5278, near session highs, up +0.32% for the week so far, ahead of later on UK prelim GDP figure, amid broad debate on whether the UK will go through a triple dip recession, or not. The pair has been capped so far for the week below Monday's highs at 1.53 round, also 61.8% Fibo retrace of latest leg down from Friday's highs at 1.5370.
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