Money in Motion

Busch: Euro Trade Update

One hundred dollar bill and one hundred euro bank note
Medioimages | Photodisc | Getty Images

Last Wednesday, I recommended selling the euro against the dollar because the bad news in Europe was far from over. Here's an update.

Last Wednesday, I recommended a euro trade for these reasons:

“However (despite the good news helping the EUR on July 13), the European debt crisis is not close to being solved and CDS for Italy and Spain remain near 300+.  Also, option volatilities spiked on Monday/Tuesday with gamma very expensive.  While this has backed off, the decay for the weekend will be costly and will likely force some to exit.  Therefore, I want to fade this positive Risk-On theme ahead of July 15's European bank stress test results.

Sell EUR/Buy USD

  • Entry 1.4225 (Bottom from July 7 and 8)
  • S/L 1.4375 (above the highs of July 7 and 8)
  • T/P 1.3775 (Just above the low of March)

On July 14th, this entry was triggered. The high on the EUR after the position was entered into was 1.4280 and therefore the S/L was not triggered. The EUR has traded down to 1.4015 and is now trading around 1.4050.

I would move the S/L down to 1.4307 to further reduce risk. 

Last Friday on Money in Motion, I stated that the European stress test results indicating only 8 banks failed was too low an estimate and that bank analysts would spend the weekend using their own criteria. Today, J.P. Morgan’s Kian Abouhossein said that twenty top banks would fail a more severe test based on the data they supplied in the official test, with lenders in Britain, France and Germany all falling short, according to Reuters. “The banks tested would show an 80 billion euro capital deficit, including 25 billion euros for UK banks, 20 billion euros for French banks, 14 billion for German banks, 9 billion for Italian banks, 4 billion in Spain, 4 billion euros for Portuguese banks and 4.5 billion in Austria, Abouhossein said.”

Expect more bad news to come ahead of the July 21 European Union summit on the debt crisis.

Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a contributor to CNBC's Money in Motion Currency Trading.

You can comment on his piece and