A very nice piece from Citi FX Spot FX Trading Commentary.
It says the EUR/USD is subject to conflicting signals (equities and peripheral debt suggest a much higher EUR/USD, but that 5-year rate spreads (Germany/USA) suggest much lower EUR/USD) and thus the net result is confusing crosswinds … “Stay away from EUR/USD”.
Instead, it says you “are better off selling rallies in EUR/GBP”:
Concedes the trade is crowded,
- “but so was AUD/NZD all the way down…”
- “AUD/NZD: Continued hawkishness was enough to keep the trend going”
And goes on:
- “EUR/GBP: Continued hawkishness is enough to keep the trend going” (that is, Bank of England hawkishness)
And then offers up “EUR/GBP shorts: Lessons from the AUD/NZD trade”:
- Divergent central bank policy can create sustainable trends
- Positioning can stay stretched for a very long time—don’t worry too much about positioning
- Keep selling rallies
- Rallies in EUR/GBP tend to be around 200/250 pips
- Take profit when the Bank of England hikes
