Strategist: Beware the Euro's Strength

euro and dollar on seesaw
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It's a big day for relief, now that Congress has teetered back from the brink of the 'fiscal cliff,' and the currency markets are no exception. The euro, for one, is rallying, despite a disappointing report on euro zone manufacturing.

The contradiction is not sitting well with Jens Nordvig.

Nordvig, who is global head of currency strategy at Nomura Securities, says Europe may no longer be facing sudden disaster, but the new year will still bring significant challenges.

At the moment, "i think there's a risk compression trade that's going on. You can see it in the euro bonds, compressing even further. That's driving the euro higher," Nordvig told CNBC's Simon Hobbs.

But while the euro may strengthen for a bit, Nordvig expects it to move gradually lower through the year.

So Nordvig wants to wait for the euro to push higher, and then sell it against the dollar at 1.3400. He recommends a stop at 1.3600 and he is looking for a move to 1.2900.

"Euro zone growth is still extremely weak," he says. "Once the risk compression has run its course, I think that trend is going to be taking over again."

The key problem, Nordvig says, is not a potential crisis, as it was in 2012, but the lack of economic vitality in the euro zone. "I think we've moved from a funding crisis to a growth crisis," he says. "Therefore, I think during the year, the ECB will be forced to take additional steps and that will drive the euro gradually lower."

If Nordvig is right, the euro bulls out there will be in for a surprise.

Tune In: CNBC's "Money in Motion Currency Trading" airs on Fridays at 5:30pm and repeats on Saturdays at 7pm.

Learn more: The essential vocabular for currency trading is on Key Terms Dictionary. Top currency strategies are broken down for you in Currency Class.

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