Investors should switch to a more risk-neutral position on the euro as the recent rally in risk assets has made currency crosses that are not risk-adverse less attractive and they may come under further pressure, Jens Nordvig, global head of G10 foreign exchange strategy at Nomura, told CNBC.
The euro ended Friday's session virtually flat ahead of a meeting on Monday by euro zone finance ministers to discuss a second bailout for Greece and as US markets were closed for a holiday.
“There’s a very pronounced ‘structural weakness’ in euro zone capital flows coming both from the inflow and outflow side and that’s one of the key factors we’re looking at”, Nordvig, who is short the euro versus the dollar, told CNBC.
He has a target for the single European currency of $1.25 for the first quarter.
Investors should also start booking profits on cross-yen trades as the Japanese currency is set to trade higher in coming weeks, Nordvig said.
Nordvig warns that a new wave of global risk aversion and the announcement of further stimulus by the Federal Reserve may push the yen up to 76-77 versus the dollar in the near-term.
“We think the upside is probably limited here” he told CNBC.
“Our forecast for the second quarter is 80 so we’re already getting quite close to that, but we don’t think it will trade there quickly. We think it’s probably time to book some profits on yen-funded trades at this point”.
In a note to clients, Nordvig flagged up other potential risks to cross-yen trades, including a potential disappointment about the European Central Bank's Long-Term Refinancing Operation (LTRO) due at the end of February.