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Why the Euro's Strength Will Ebb

Wednesday, 5 Dec 2012 | 11:10 AM ET
Broken Euro Coin
Adrian Burke | Digital Vision | Getty Images
Broken Euro Coin

The euro has been on a roll for the past month or so, with halting progress on the Greek crisis and the end of the seemingly interminable U.S. presidential race. But if you are thinking of getting long the common currency, think again.

Risk appetite is about to fall off, and it will take the euro down with it, says Andrew Busch, global currency and public policy strategist for BMO Capital Markets.

"We have only one more week before things turn over as far as risk goes in the financial markets," he told CNBC's Simon Hobbs. "I'm worried about the fiscal cliff. Negotiations look ugly. Also I''m worried about U.S. stocks once they start to go ex-dividend."

What Worries This Trader About the Euro
A currency play on the euro, with Andrew Busch, BMO Capital Markets.

But rather than sell just yet, Busch wants to wait until Friday's nonfarm payroll report. He figures that could give the euro a little lift, and at that point he wants to sell the euro against the dollar at 1.3175. He recomments a stop at 1.3250 and a target of 1.2975.

"Just this week. we have decent risk," he says. "Most of the risk on trades will hold including euro. Next week, not so much."

Next week also brings a Federal Reserve meeting, which could result in a policy announcement that weakens the dollar - but Busch argues that that possibility is already priced in.

"What's not priced in is what happens after the ex-dividend date for stocks."

Brace yourself.

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