Real money abandons euro

UBS said real money managers were net sellers every day last week, suggesting that shifts in daily risk appetite no longer had any bearing on decision making in the sector.

“As soon as there is a small rally in sovereign bonds or the euro in general, they will be on the offer to reduce exposure,” says Geoffrey Yu, strategist at UBS. “Clearly, the anticipation is that eurozone event risk will pick up further in the coming weeks, and with no resolution in sight it is prudent to reduce exposure ahead of time.”

Overall, the bank’s flow data showed EURUSD selling last week was the highest since late 2010, with the single currency only salvaged by a lack of selling from other client classes.

However, UBS said real money managers remained the main sellers of the euro.

Most shorted the single currency against the dollar, given that action from the Japanese and Swiss authorities to weaken their currencies left investors with less choice as to which currencies to buy.

“Clearly, investors want to be short the euro, but the channels through which this is possible are closing fast,” says Yu.

“We note that asset managers remain the dominant driver in EUR downside flow, though there may be a stage at which these positions are exhausted, especially heading into year end, and we remain wary of any potential short-covering rally.”