Why is the euro starting to trend lower?

Posted on 22. Jul, 2014 by Jean Jacques Ohana in Weekly Focus

We have anticipated the euro’s strength for more than a year against the consensus.
The main forces behind the euro’s strength are still at work:

Current account in the Eurozone is still progressing due to uncooperative and simultaneous policies of competitiveness. The Eurozone current account is nearing 3% of GDP, implying recurrent repatriation of foreign currencies by [...]

The euro is not ready for a sell

Posted on 27. May, 2014 by Jean Jacques Ohana in Weekly Focus

The EUR/USD was undoubtedly hit in the aftermath of Draghi’s pledge to react to low inflation and low growth conditions in the Eurozone, dropping from around 1.40 down to 1.3650.

As a matter of fact, Riskelia’ s trend indicator (figure 1) which had been hovering around a significant 60% value since 2013, fell in slight positive [...]

ECB’s exchange rate guidance: a game changer? Probably not.

Posted on 17. Mar, 2014 by Jean Jacques Ohana in Weekly Focus

Last week, we experienced an interesting turnaround in the ECB communication. For the first time, the ECB expressed its concern regarding the level of the exchange rate, arguing that the euro strength aggravates the problem of insufficient inflation. The speech has had the desired effect on the euro but the impact has been quite short-lived, [...]

Is EUR/USD heading to 1.40?

Posted on 17. Feb, 2014 by Jean Jacques Ohana in Weekly Focus

The outlook of the dollar has been indecisive since Mario Draghi’s pledge to “do whatever it takes to save the euro” and the subsequent announcement of the QE3 Federal Reserve program. For sure, the emerging currencies have been hardly hit but the euro has served too as a repatriation currency during market stresses.

As showed in [...]

Playing the Eurozone disinflationary trend

Posted on 03. Feb, 2014 by Jean Jacques Ohana in Weekly Focus

The current emerging markets rout happens at the worst moment for Europe. As Eurozone countries have made the choice to export their way out of debt, they have made themselves increasingly vulnerable to the growth prospects in emerging economies.

The ongoing landing of the Chinese credit bubble and the sudden stop experienced by emerging countries running [...]

Easing of euro zone debt spreads, convergence of correlations

Posted on 06. Jan, 2014 by Jean Jacques Ohana in Weekly Focus

A slow convergence process of euro zone sovereign interest rates has started since the ECB considered the launch of the OMT program. The OMT is not a quantitative easing program, it’s a promise from the ECB to intervene as lender of last resort should a country ask for the help of the European Stability Mechanism [...]

Reading the 2014 financial scenarios through the lenses of 2013

Posted on 30. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

A bird’s eye view of 2013 History will help us design some financial scenarios for 2014.
The main financial event of 2013 has been the remarkable decline in financial integration (figure 1) which translates a greater confidence in the financial system. Equities of developed countries have steadily risen whereas emerging markets have tumbled. Commodities-linked currencies have [...]

Financial consequences of the ECB’s impotence

Posted on 09. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

Before the last ECB meeting, we could wish that several ECB council members were determined to fight the deflationary threat in the Euro zone southern countries (figure 1). For instance, the last surprise move of the ECB refi rate down to 0.25% seemed to show that the ECB wanted to move towards a proactive quantitative [...]

Why active risk balanced strategies make sense

Posted on 02. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

Risk Parity strategy or more accurately risk balanced allocation is a methodology which consists in allocating risk to assets classes rather than capital.

An example is presented below for an unleveraged portfolio. A leverage (for example multiplying all allocations by a factor 2) may be used to match the performance of traditional asset allocation portfolios.

Risk allocation

Capital [...]

Italian Government bonds: Cosa succede esattamente?

Posted on 19. Nov, 2013 by Jean Jacques Ohana in Weekly Focus

Italy is the clearest loser of the euro zone crisis. Since 2010, the country has suffered from an overvalued currency and absurdly high private and public debts’ interest rates given its positive primary fiscal balance (before payment of interest rates).

As showed in figure 1, the borrowing costs of Spain and Italy depend much more on [...]