Large EUR outflows to continue to cap EURUSD upside - BNPP

Research Team at BNP Paribas, suggests that the Eurozone Balance of Payments data in 2016 has indicated that Eurozone domestic investors remain very strong buyers of foreign bonds, consistent with the European Central Bank’s policy of crowding out Eurozone investors from domestic fixed income markets.

Key Quotes

“In 2016, the average monthly pace of Eurozone investor purchases of foreign bonds has been EUR 46.8bn (until the end of May), which is even greater than the average for 2015, which was EUR 31.9bn.

We expect the theme of large EUR outflows to continue in the second half of this year and perhaps even accelerate as total Eurozone bond issuance minus both redemptions and ECB purchases is very negative for the balance of the year (-EUR 221.1bn from August until December). We think EUR portfolio outflows will be a key factor in capping EURUSD upside in H2 2016.”