How to Trade the Euro Now

Euro currency market
Dieter Spannknebel | Stockbyte | Getty Images

If you've been whipsawed by the euro's wild ride over the past several months, maybe it's time to step back and look at what's really moving the currency.

The times, they are a changing, says Jens Nordvig, global head of FX strategy at Nomura Securities.

The euro, he says, is moving "away from risk premium driven moves, towards more growth driven fluctuations." And that is not going to be good for the currency, he adds. "We expect a continued gradual decline in EURUSD driven by euro zone growth underperformance."

For a long time, the northern part of the euro zone was robust enough to offset weakness in the periphery. But that is no longer entirely the case, with France reporting economic contraction in the fourth quarter of 2012 and a likely overshooting of its deficit target.

That's not all, Nordvig says. "Equity outflows from the euro zone may be increasingly important in driving the euro weaker."

So Nordvig recommends using the euro as a funding currency on a variety of trades, particularly against emerging market currencies. The common currency has already hit his first-quarter target of 1.30 against the dollar, but he says, "we stick with high level of European funding in our EM basket, and we look to sell EURUSD on spikes."

Over to you.

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