Home EUR: Long-End Reaches Flattest Levels Since 2015 And Crisis; What’s Next? – BofA
Daily Look

EUR: Long-End Reaches Flattest Levels Since 2015 And Crisis; What’s Next? – BofA

EUR/USD has reached its flattest levels since 2015. Are there further flattening risks ahead?

Here is their view, courtesy of eFXdata:

Bank of America Global Research discusses the EUR curve outlook.

Depending on your sector of choice,  the EUR curve has either reached its flattest levels since the crisis or since pre-2015 Bund tantrum extremes.  While  the moves are superficially akin to last summer, a number of key differences suggest additional flattening risks  cannot be ruled out;  we are only at Stage 3 of 5 in the flattening move,” BofA notes.  

“Stage 1 was driven by 50y,  arguably on the back of  expected  Dutch pension discounting rule changes that increase  the sensitivity of Dutch PFs to rates beyond the 30y. Stage 2  looks like  insurance receiving,  but with the regulatory push far in the offing, this may have been anticipatory flow, rather than actual hedging.  In Stage 3, negative gamma on the other hand does seem to have been a driver, more so than in 2019.  However,  we  may  have yet to see broad-based capitulation of underweight duration positions in core EUR,  though arguably price action  Monday/Tuesday suggests this may be starting,”BofA adds.  

n169.PNG

For lots more FX trades from major banks,  sign up to eFXplus

By signing up for eFXplus via the link above, you are directly supporting Forex Crunch.

Kenny Fisher

Kenny Fisher

Kenny Fisher - Senior Writer A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.