Euro Trade Is All in the Timing
Your best euro trade right now is all about your time frame, this strategist says.
It's sure been a big week for the euro .
First came word that Germany was willing to make some concessions on a debt deal. Then came doubts that a deal was really imminent, and worries that just extending more credit would just push Greece's problems into the future. Now today it appears Greece's lenders may have something to say on Friday.
Through all this, the euro has been on quite a ride. If you're trying to surf this particular wave, what do you do?
Your time horizon is everything, according to Elsa Lignos, senior currency strategist at RBC Capital Markets. She says a deal that postpones any real restructuring of Greece's debt - in other words, a deal that more or less preserves the status quo - should help short-term investors settle down.
"A deal for Greece this month which postpones the question of restructuring also takes away uncertainty about what the unintended consequences could be," she wrote in a research note. And that could push the euro-dollar rate up 300 points, she estimates. So for short-term investors, this could be a buying opportunity.
That said, the euro-dollar trade is still vulnerable to overall shifts in risk sentiment. So Lignos told me she sees more opportunity in trading the euro against a currency that tends to perform similarly in similar risk environments. Lignos likes the euro against the New Zealand dollar, which has been very strong of late, and "in our minds, it's gone too far," she says.
So that's a short term plan. But remember, most analysts believe that some kind of debt restructuring for Greece is just about inevitable. If and when that time comes, the effects will ripple through the euro zone - and probably batter the euro. That's why Lignos says that "For a longer term investor we would see that rally as an opportunity to set up longer term EUR shorts."
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