The markets have been very resilient in the face of a potential slowdown in the global economies. This could be because of many central banks getting ahead of the curve in the amount of easing that they are taking on or discussing. This could cause the markets to go into a fall if market participants do not feel that the data coming out this week (or any week) coincide with their projections. Looking at the EUR/JPY pair as a gauge of the markets growth prospects we can see that the need for safe haven currencies over potential growth currencies is waning. In spite of the ECB looking towards more easing and the Japanese economy facing headwinds from tax increases the pair has reached highs of the year.
As far as safe haven assets go, in the event of news coming out in the global economy that would threaten the growth of the global economy, this pair will be one that I would most likely want to short. In a slowdown it is expected that the ECB will speed up the process of easing to stop the crisis from hitting the already fragile recovery in the periphery countries and the Japanese economy will go further into recession with the government slow to act on a strengthening currency for fear of political gridlock.
With the recent cut in interest rates by the ECB and the threat of more easing measures on the horizon (a potential -0.10 interest rate), the time to start looking for opportunities for beneficiaries of these policies is now. Looking at Eastern Europe as a potential haven for countries to find cheap labor in the face of higher inflation (and ultimately higher wages), especially in the case of Germany, to offset the increased competitiveness of the periphery that would start to recover. An increase in production while still shunning from true energy reforms in the region could also spur a boon in the energy sectors as well, though this seems to have more headwinds on the near term horizon (perhaps making for a good opportunity to get into some of these energy heavy Eastern European ETFs). I think that there could be some potential in this region after looking into the intricacies of the countries and their relations to Europe.
The ECB will have its policy meeting on Thursday, leaving just one trading day between now and then in the US. Many investors should look to pare back some of their gains in European equities and other euro denominated assets (though I think there can be upside to Bunds in a downside scenario). The euro has come off of its highs last week and could still have room to fall to major currency pairs in the future. Inflation is lower and growth is shaky across the regions, which could prompt action by the ECB, though they cannot outright move the currency they can lower the discount rates and even negate them in order to stimulate the growth in currency. With banks going through stress testing and most likely buying up more bonds (specifically German) there could be an opportunity for the ECB to assist in this through a round of bank funding as well. There are many scenarios that would lead to a weaker Euro, and the governments in the periphery will need this, as inflation is one of the few ways that they will be able to lower their debt ratios over time.