Interesting dynamics at work. Trade can drive the currency and/or the currency can drive trade.
Looks to me like early on it was the trade that was driving up the currency, But more recently the currency looks to be driving trade.
That is, portfolio managers have been shifting out of euro due to the crisis, cheapening it to the point where the trade flows are on the other side of their portfolio shifting.
For example, someone selling his euro for dollars is effectively selling them to an American tourist buying tacos in Spain. Euros shift from the portfolio manager to the Spanish exporter.
Trade flows are generally large, price driven ships to turn around, and continuous as well. Portfolio shifts, while they can also be large, are more often ‘one time’ events, driven by fear/psychology, as has likely been the case with the euro. So a turn in psychology that ‘rebalances’ portfolios to more ‘normal’ ratios can be very euro friendly.
> (email exchange)
> This was an interesting chart from Nomura that came out over the weekend discussing
> the current account against the portfolio flows – suggests that the portfolio flows
> have turned significantly negative for Europe and are much bigger than the positive
> effects of the current account.
Yes, agreed. this says much the same story I was telling, only better!