Are Currency Investors Too Bearish?

Are Currency Investors Too Bearish?
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This strategist says there are more positive trends out there than investors realize.

If the post-election markets have been marked by one feeling, it's dread. Investors are worried about the fiscal cliff, they're jittery about the euro zone, and China's uncertain growth prospects are unsettling.

Not surprisingly, safe haven currencies like the dollar and the yen are riding high as investors shy away from risk-sensitive assets.

Steven Englander, global head of G10 FX strategy at Citigroup , says it's time to look on the bright side.

"This is the Autumn of peace and love between Democrats and Republicans as they seem to be converging on a fiscal cliff formula," he wrote in a note to clients. Also, "the Europeans seem to be bumbling towards some deal on Greece, admittedly with the usual set of dire headlines on how agreement is not being reached, followed by indications that, when needed, the money is being found." As for China, Englander says the firm's economic surprise index for the country "has been picking up sharply."

True, the fiscal cliff negotiations could stall, or the euro zone quagmire could drag on, or conditions in China could worsen. But Englander argues that investors seem to be expecting all of these things to occur, and that's unlikely. Bearish investors, he says, are also ignoring a certain political reality: "the presumption that all of these turn in a negative direction ignores the history that policymakers cut both deals and corners to maintain growth and support asset markets when there are no alternatives."

Englander doesn't offer specific trading suggestions. But if he is right, it could be time to back away from the safe haven currencies.

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