What drives the $EUR?
cc @o_wutang

FX risk-on/risk-off drivers might be misleading when it comes to $EUR. While long-lasting correlations (such as the JPY,CHF/risk-off) might play role in FX drivers, the EUR correlation is probably the biggest misconception
practitioners have. imo EUR drivers are more funding related than risk-on/risk-off (if anything it's negatively correlated to equities, or positively correlated to vstoxx/vix movements).

The root of this misconception lies in the fact that traders/investors have a long
memory, and remember how EUR behaved after the GFC and through the sovereign credit crisis.

Since then, both the ECB and the European Council have done a lot to safeguard the EU (or at least kicking the can down the road), so the EUR became less risky currency
and as the ECB cut rates aggressively (and printing money to infinity via TLTRO + lending window), the EUR became a funding currency (very much like the chf and jpy).

One of my current projects reveals a high correlation between carry flows and EUR Index dynamic.
Furthermore, the correlation between EUR and equities has deteriorated, while the correlation to FRA-OIS, xccy basis, and credit spreads strengthened.

If you are thinking about buying EUR puts for risk-off protection, I guess you should think again...

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