What Could Go Wrong at the EU Summit
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Expectations for the European Union summit are low, but this strategist says the euro could still disappoint.
The European Union summit is underway, and currency strategists are glumly assessing the prospects for progress in solving the euro zone crisis. And then there is Jens Nordvig, global head of G10 FX strategy at Nomura Securities.
Nordvig has correctly called a number of weak points for the euro, and he thinks the common currency could be headed south again after the summit.
"Expectations are low, and FX traders have actually cut shorts, because they think we can only get an upside surprise," he told me. "We are fairly sure that the summit will not provide a major surprise, and we are increasingly of the opinion that the ECB will remain reactive, meaning no bond purchases next week."
If no upside surprise in fact materialize - no concrete agreement on euro bonds or near-term efforts to create deposit insurance, no quantitative easing by the European Central Bank - the euro will take it on the chin, Nordvig says.
In that scenario, "we will see notable market deterioration over the next 1-2 weeks, and EURUSD will be testing 1.20 by July."
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