EUR/Asia crosses: Further weakness – ANZ

Analysts at ANZ suggest that they had been bullish on EUR/Asia since the French Presidential elections in April 2017 and although they still hold a long-term constructive view on the EUR as the ECB proceeds to normalise monetary policy in the coming years, they expect the recent retreat in EUR/Asia crosses to continue into early 2018.   

Key Quotes

“On the technical front, after peaking in September, our EUR/Asia index is now breaking below the 100-day moving average, the first time since last April.”  

“We also expect risk reversals in EUR/Asia crosses to retrace lower in the near term. Currently, the skew in the risk reversals modestly favours EUR calls. Even though we don’t expect risk reversals to turn deep into negative territory to favour EUR puts as seen earlier this year, some easing is likely in the near term.”

“Meanwhile, volatility in the crosses, which has been on a downtrend in the past two months, could remain soft. Now that some key events (ECB meeting and, in Asia, China’s Party Congress and MAS policy review) are out of the way, one main event which could still drive up volatility is geopolitical risks, particularly on the Korean Peninsula.”