Nomura sticking with their euro breakout vs usd call from a few weeks ago. I took the other side on the false breakout due to widening interest rates spread between the two. HY is now more expensive in the eurozone than US. Historically a 200+ basis point differential in favor of US HY usually exists.
& here a commitment of traders review on the fx pairs from scotiabank. The USD unwind has been large and until last week represented 5 weeks in a row of usd outflows from the prior massive long position. I took this as an indication to enter. The trade was significantly less crowded than it was and time for continuation. Nomura is taking the other side of this bargain. It takes two to make a market of course!
By the way, for what its worth, i disagree with the Nomura team’s tech chart above. Ill post up my own later today as a comparison. I don’t believe we have seen a euro breakout of her cyclical bear market vs the usd yet. We are 1) in tech continuation mode therefore in an environment, as above, of 2) widening rate differential as well as 3) market uncertainty as well as 4) geopolitical worries. All four are significant US$ tailwinds note! ie this pair could move a long way..
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