Euro extends gains with bonds in focus

Author: Mike Paterson | Category: News

Euro pairs enjoying a good day at the office so far 20 April

EURUSD has now taken out the offers/res between 1.0750-60 to post 1.0763 with EURGBP up to session highs of 0.8388 and EURJPY up to 117.37

DAX down -0.2% as 10-year German govt bond yields rally up to 0.23% which is a 10-day high.

French elections this Sunday so perhaps a relief-rally as Le Pen vote falls in the polls.

Earlier I also reported on Mitsui Life's plans to buy a few more euro based bonds/less USD-based for its portfolio in 2017/18 and I said at the time it should be euro supportive and that's added to what was already solid dip demand in early trading.

Japanese investors have been favouring foreign bonds over low-yielding domestic bonds for a while now. In the last financial year-end March 2017 Japanese insurers bought a record total of JPY 7.76trln of foreign bonds and hedge a large part of that as they do not want/like the FX exposure.

Hedging costs are based around short-term interest rates so with US rates rising and EZ rates still in negative territory it's little surprise that the euro should be favoured.

Political risk aside I, and Ryan, have long argued/highlighted that the euro has fundamental demand whether through Chinese support or other fundamentals such as these bond purchases thus creating the dip-demand.