US investors expect the Fed to hike and the ECB to enact aggressive easing in December. We expect the ECB to very aggressive in December by cutting rates, expanding QE and providing strong forward guidance.
US investors expect EUR/USD to fall sharply near-term. We believe that it will be 'sell the rumour, buy the fact' when the Fed hikes/the ECB eases. Moreover, we expect EUR/USD to rise sharply in 2016 on valuations and a closing European output gap.
US investors are bullish on short-duration euro FI periphery, particularly Italy and Spain, but more cautious on Portugal. We remain bullish on 10Y Portugal despite current political jitters.
US investors think that Swedish inflation will rise and that the SEK is cheap. We are of the view that the Riksbank is still too positive on CPIF and that the currency is not that cheap. We like the 5Y SGB while EUR/SEK remains stuck in a 9.30-9.60 range.
US investors are bearish on Norway but think the currency is looking increasingly cheap. We expect a spike in EUR/NOK into year-end but see significant potential in long-dated bearish EUR/NOK structures if it spikes to 9.60-9.80.
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