Tactically long EUR/USD on Italian correlation breakdown - Nomura

Analysts at Nomura suggest to enter long EUR/USD to take advantage of its recent outsized fall with the following parameters:

“Enter: 1.1760, Target: 1.20, Stop: 1.1640”

Key Quotes

“The market is always ready to fight the last war. Last week’s Italian-led moves resulted in rising market contagion risk elsewhere that was less warranted today than it was during the days of the euro crisis. The economic fundamentals of Italy and the eurozone are a much healthier than in 2011 while foreign investor exposure to Italy is much less. The difference is clear in the reaction of ECB policymakers who have recently advised caution over Italy but are unwilling to delay policy normalisation at this stage.”

“The recent ECB speakers have made it clear that the June meeting will see a discussion about the unwinding of QE and set the market up for its eventual end. While the timing of a rate hike is still uncertain at this stage, the correlation of EUR to Italian spreads is starting to fall once again, although levels are attractive to expect retracement of the recent risk-off moves. Italy is still a concern, but it is less of a broader EUR contagion story. We therefore enter long EUR/USD to take advantage of its recent outsized fall.”