Money in Motion

Think the Euro's Full of Holes? Try This Trade

If you're worried about the seemingly unending euro zone crisis, there's a less than obvious wa

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y to steer clear.

What exactly will it take to get euro zone leaders to agree on a solution to the debt crisis? Great question. Wish I had the answer.

Since no one really does, this is probably a great time to steer clear of the euro,   says Jens Nordvig, chief G10 currency strategist at Nomura Securities.

"We think a detailed and concrete response appears to be weeks away, and its first installment may not be sufficient when it comes," Nordvig says.

The euro-dollar trade is incredibly liquid, and for a long time, the rise and fall of the euro-dollar pair correlated closely with other measures of sovereign debt risk, like risk premiums on government bonds. But Nordvig says that since February, that relationship has diverged. The euro-dollar relationship since then has had much more to do with different interest rate policies at the European Central Bank and the Fed. The risk premium on the euro is rising again - but only now that the situation in Europe is more dire.

"All told, it appears that EUR/USD only responds to sovereign risk when it triggers systemic risk," Nordvig says.

If you want a better cross for the euro, Nordvig suggests the Swiss franc. That pair has been very closely correlated with measures of systemic risk in the euro zone, he says. So "despite a historically low level in the cross, we think EUR/CHF may be the cleanest vehicle to express a bearish view on euro zone systemic tension," Nordvig says.

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