It's Time To Invest In Currencies; The "Great Rotation" Has Started - Deutsche Bank
It is a perfect time to invest in the currency market, Deutsche Bank advises its clients in a note toady.
"The start of the Great Rotation coincides with a cyclical trough in FX returns, suggesting we may be entering a cyclical "bull" market for currency investors," says DB.
So, what does this mean for FX? DB outlines the following 3 outcomes:
First, the EUR should outperform in the initial stages of the "rotation". The sovereign crisis has mostly involved intra-Eurozone capital flight, but the last three years have seen leakage to safe-havens. Some crosses such as EUR/GBP have already recovered most of their pre-2010 losses. But the years of broad-based EUR weakness are over.
Second, FX drivers should become more idiosyncratic. Lower global tail risk means that both policy changes and investor flows become more responsive to individual country conditions. Correlations between FX and risk appetite have already come down, and we think this is here to stay.
Third, and as a result of the above, currency investing should finally start providing returns as bottom-up analysis pays off.