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22 Apr 2015
EUR/JPY no longer a barometer of risk-on/risk-off sentiment - FXStreet
FXStreet (Barcelona) - There has been a shift in the characteristics of EUR/JPY as a currency which reflected risk-on/risk-off sentiments, largely due to the transition in EUR from a growth to a funding currency, explains Omkar Godbole, FXStreet Editor and Analyst.
Key Quotes
“EUR is a funding currency, but not a safe haven – The Euro is no longer a growth currency. With the Refi rate at 0.05% and the deposit rate at -0.20% it is now a funding currency.”
“The ECB’s QE led drop in German long term bond yields to near zero levels means the investors have to look out for other high yielding assets outside the Eurozone. This is nothing but Draghi’s portfolio adjustment effect. However, the search for yield is high during risk-on rallies. Hence, the EUR is likely to be sold now during risk-on rallies in the markets.”
“However, that does not mean the shared currency would be preferred in times of risk-off rallies. Though a funding currency, it is still not a safe haven asset.”
“With Greece issue and debt problems the currency is likely to be a last resort - below Treasuries, Gold, Japanese Yen and Swiss franc in times of risk-off.”
“Consequently, the pair does not represent a risk-on/risk-off as accurately as it did earlier.… the strong direct correlation does not exist now.”
Key Quotes
“EUR is a funding currency, but not a safe haven – The Euro is no longer a growth currency. With the Refi rate at 0.05% and the deposit rate at -0.20% it is now a funding currency.”
“The ECB’s QE led drop in German long term bond yields to near zero levels means the investors have to look out for other high yielding assets outside the Eurozone. This is nothing but Draghi’s portfolio adjustment effect. However, the search for yield is high during risk-on rallies. Hence, the EUR is likely to be sold now during risk-on rallies in the markets.”
“However, that does not mean the shared currency would be preferred in times of risk-off rallies. Though a funding currency, it is still not a safe haven asset.”
“With Greece issue and debt problems the currency is likely to be a last resort - below Treasuries, Gold, Japanese Yen and Swiss franc in times of risk-off.”
“Consequently, the pair does not represent a risk-on/risk-off as accurately as it did earlier.… the strong direct correlation does not exist now.”