Photo: ceesjw (Cees Wouda)
In a conference call yesterday, Nomura analysts made some bearish predictions about the outcome of the euro crisis, predicting a that a “decisive moment” for Europe will come sometime in the second or third quarter of this year.This escalation of fear and risk, as well as the methods the European Central Bank will take to solve it, will push the euro downward fast, they argued. What’s more, there’s little hope of the euro recovering its value anytime soon.
“We think $1.20 is highly likely in an exit scenario for Greece,” Jens Nordvig, Nomura’s Head of Fixed Income Research Americas & Global Head of G10 FX Strategy, told analysts. “We think it could happen before the elections given the capital flow” [out of euro].
Even if pro-bailout Greek politicians can successfully take control of the government and EU leaders make concessions on the harshness of austerity policy, Nordvig predicted that any “bounce [in the currency] would be fairly moderate.”
Des Supple, the Global Head of Fixed Income explained, “I think this change in the capital flow picture and the new appetite by euro investors to buy foreign bonds as an investment [indicate] the bounce is going to be much more limited in the future, and I’d be really surprised if we can even break $1.30.”
Analysts described European investor flight to foreign assets as “the most important element” of the growing crisis. “Over the last two months, we’ve seen a new face of deterioration,” Nordvig said. “It is very, very rare to see investors accumulate foreign assets in a bear market, so this tells me that we are essentially entering a new, even more dangerous point in the crisis.”
Nomura analysts expect the crisis to “get worse before it gets better,” with euro area economist Dimitris Drakopoulos cautiously predicting that, “based on current trends we are heading towards [a Greek] exit.”
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