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22 Apr 2013
Forex Flash: Trends continue in liquidity fuelled rush to risk - Societe Generale
FXstreet.com (Barcelona) - Sebastien Galy, Senior FX Strategist at Societe Generale notes that trends continue in a liquidity fuelled rally now at a more advanced stage.
He notes that much as in 2007 and 2006, the bubble is flagged early (White in the BIS for example) and yet the rush into risk continues fuelled by extremely cheap liquidity. He sees that the search for cheap hedges should be a rising concern, at a minimum it suggests some long USD vs EM hedges (or reduced under hedging) may be worth a look.
He remain short EUR/USD and GBP/USD and somewhat lucky. Tightening bond spreads in Europe are not helping EUR/USD as much as they used to. He sees USD rise almost by default across the board. Galy feels that one explanation may be some increased hedging of EM positions as EM performance has been increasingly mixed relative (his EM colleagues put on a EURPLN long position this morning). He adds, “Another one may be that as in the mid 1990s, equity flows into the US are driving the USD higher. While convenient flows have been extreme and helped the USD very little in past months.”
He notes that much as in 2007 and 2006, the bubble is flagged early (White in the BIS for example) and yet the rush into risk continues fuelled by extremely cheap liquidity. He sees that the search for cheap hedges should be a rising concern, at a minimum it suggests some long USD vs EM hedges (or reduced under hedging) may be worth a look.
He remain short EUR/USD and GBP/USD and somewhat lucky. Tightening bond spreads in Europe are not helping EUR/USD as much as they used to. He sees USD rise almost by default across the board. Galy feels that one explanation may be some increased hedging of EM positions as EM performance has been increasingly mixed relative (his EM colleagues put on a EURPLN long position this morning). He adds, “Another one may be that as in the mid 1990s, equity flows into the US are driving the USD higher. While convenient flows have been extreme and helped the USD very little in past months.”