EUR/USD collapses fast – 6 reasons – Nomura

Things are happening quite fast in the early days of 2015, with further extensions of previous trends. One of the strongest moves comes from EUR/USD.

What is behind this fast collapse? The team at Nomura explains:

Here is their view, courtesy of eFXnews:

Few days ago, Nomura argued that the latest IMF data on the global central bank reserve composition is a big deal for EUR projecting a faster decline in the single currency in early 2015, driven more purely by private sector flows.

Acting on that view, Nomura booked profit on its short EUR/USD position around 1.20 and entered another short position on Friday targeting a quick move to 1.1877. With this trade hitting target at this week’s market open, Nomura explains the following 6 reasons behind this fast EUR decline and what is on the cards in the near-term:

1. The euro has had significant downside momentum in numerous crosses since the middle of December, and this momentum has been sustained in illiquid trading over the holiday period.

2- The latest futures market data do signal that EUR shorts have started to rise again following the washout in mid-December. But this trend could have further to run, as we are not yet back at the maximum short levels of November 2014.

3- Meanwhile, it would be typical to see ‘fundamentally popular trades’ receive subscription and momentum in the early part of January, and this could be important for price action in the next 1-2 weeks especially.

4- As the January ECB meeting approaches, expectations for sovereign bond purchases may increase further. Our own view is that the announcement is likely in January and we could see expectations shift meaningfully in coming weeks (ahead of the event), putting downside pressure on the euro

5-  The flow news on the euro has been very negative recently (see more here).

6- Technically, Nomura thinks that another breach of 1.1877 could see additional impulsive follow through.  

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