Busch: Your Best ‘What If’ Trades

If US and EU are both in recession, we want to try to make a play away from both currencies to avoid getting into a competition over who's worse.

Buy SGD/Sell JPY

Why this pair?

I like the Singapore dollar as a decent proxy for Chinese renminbi and its connection to emerging markets. I don’t like yen as I believe the Japanese will be either clandestinely or overtly intervening to buy USD ag. JPY similar to 2003-05. Using these pair directly avoid both the USD and EUR.

  • Entry 62.85 which is above recent double bottom at 62.68
  • S/L at 62.35 which is 50 pts. below the recent double bottom on 8/11 and should confirm a break.
  • T/P at 64.85 which is just below the recent high 65.05 on 8/5.

Block Busch 101

US Q2 GDP was lower than expected at 1.3% and Q1 was 0.4%.

There are now calls for a recession.

US lost credibility with debt ceiling vote and still needs to cut more. The FOMC is on hold until 2013. Friday, the US will release a revised GDP and it’s expected to be 1.1% from 1.3%.

European Union GDP Q2 was 0.2% and German Q2 GDP growth missed badly at 0.1%. EU has lost credibility over debt crisis as they haven’t approved latest plan. The ECB is on hold, but is buying debt.

The UK is a member of the European Union, but not of the EUR. They have austerity credibility as they have heavy spending cuts of GBP 100 billion. They will not be tied directly to either the EU or US debt disaster. Next week, we get UK GDP expected to be +0.2%. The BOE is on hold for now as a 4.4% inflation rate keeps them from acting.

Why this trade:

The GBP has held up well and is strengthening against the EUR and other currencies even with the sell-off in equities.

It could be the new Risk-Off safe haven currency.

Also, I like the potential for a rally in risk ahead of Jackson Hole …..only to be wickedly disappointed!


Sell EUR/Buy GBP

  • Entry at .8785 which is just below a recent high of 0.8800 on 8/17
  • S/L at 0.8842 which is above old high of .8830 on 8/15
  • T/P at 0.8660 which is above recent low of 0.8660

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 reach him hereand you can follow him on Twitter at http://twitter.com/abusch.

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