As per my earlier post (From sweats to shivers; EURGBP, one to watch), there finally now appears to be a more widely held realisation that Germany is going to be effected a lot harder then previously expected. The statistics continue to worsen and now economic confidence in the 16 country eurozone has fallen to levels not seen in the previous 24 years.
Being the worlds largest exporter (Using 2007 figures) and having a strong currency has finally been recognised as a bad mixture! It would seem an export driven market will be fast to recover when there is finally some kind of global recovery, but in the meantime any such region is likely to feel the pinch even harder. It is thus my contention that there are probably many opportunities in markets based on the sudden reversal of perceived fate of the Eurozone. EURGBP may be one good way of playing this theme. The dog of the currency markets, sterling, has armageddon priced in, whereas the EUR is only just turning. Perhaps, as hinted in my prior EURGBP post, the best trade would be to sell a basket of currencies versus the EUR (EURSEK, EURNOK, EURCAD, EURGBP to name a few). In any case you have to choose your own adventure, but I think EURGBP is a good short on pullbacks and see a return to .8233 as likely (see chart above). Another good trade would be to sell EURAUD, which I intend to look at in a fresh post.
It was also interesting to note that a german bond auction failed to be fully covered recently when the equivalent auction in the US was, I believe, covered 2.5 times. Is the bond market also coming to the same realisation now?
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