Currency Trades for the Risk Averse
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Europe's political drama and downbeat economic indicators are making it a great time to be risk averse. Here's one way to trade with caution.
Sure, there are plenty of times to take aggressive positions, but the strategists at Barclays Capital say that with the European crisis pushing global financial markets to "a pivotal point," this definitely isn't one of them.
The crisis could be resolved through more decisive action by the authorities and the European Central Bank, the strategists wrote in a note to clients, but "it is easier said than done as the ECB will face political constraints in the near term." So they are sticking to trading recommendations that are based on relative value.
For example:
--Sell the Swedish krona against the British pound at 0.0942, with a stop loss of 0.0945 and a target of 0.0920. The euro-krona pair "has lagged the risk selloff last week, despite its high beta-to-risk properties," Barclays says, and the British pound has moved higher against the euro. They expect the krona to weaken against the pound directly.
--Buy the dollar against the Swiss franc right around 0.901 with a target of 0.930 and a stop at 0.892. "Worsening euro area condition may prompt the Swiss National Bank to defend the floor against the euro, supporting USD/CHF," Barclays says. "Alternatively, should events in the euro area surprise on the positive side, the value of the CHF as a safe haven should fall."
--If you are willing to trade less liquid currencies, Barclays also suggests buying the Turkish lira against the Hungarian forint. at 127.5, with stop loss at 125.0 and a target of 135.0. "The Turkish central bank has an inflation problem and the economy is growing at respectable pace (4%+) and thus has both the means and motivation to lean against currency weakness," say the Barclays strategists. In Hungary, meanwhile, there are "greater de-leveraging risks from European banks."
Good luck out there.
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