EUR/USD Short

Hello,

even though the EUR/USD is already in a strong downtrend my guess is that it could easily go below parity. Each of the monetary policies seem to divert further and further. I came across the idea after hearing that Stanley Druckenmiller is shorting it as well.

Secondly, I am thinking about going long the USD/JPY pair. As it seems the BOJ has no other options in the long term than further easing, weakening the JPY and trying to buy all treasuries themselves. The problem here could be that in times of financial risk-off events (could be probable in the near- or midterm future) the JPY tends to appreciate strongly.

What are your thoughts about these two ideas?

 

my thoughts are that you needed macro ideas for an interview, so you decided to beat two dead horses and did not invest time to come up with target levels and arguments why your story isn't in fact overpriced.

 
Best Response

neither of these are surprising trades, especially the EUR. i think it's likely to go to 1.03 by YE since i believe draghi will deliver in December, but what worries me is how much more can the ECB actually do. there are a lot of political factors and other restrictions which may limit their ability to ease as much as they would like. given how overcrowded that trade is and how much is already priced in, it could swing the other way if the market is disappointed come December 4th. i liked and proposed this short back when the pair was at 1.14, but now i would be hesitant to enter the trade at this level

the yen is an interesting beast. i think abenomics hasnt worked and even if they do expand QQE in 1Q16, it probably wont have the same effect as it did last year. they will probably have to focus more on fiscal measures. there is some interesting correlations tho now with diverging swap rates and the USDJPY cross, but my suggestion would be to stay away from the USD/JPY pair and focus on some of the other asian countries. asian countries devaluing their currencies are going to put pressure on japan so i think there will be some opportunities there. the USD should be fairly immune to that, but the JPY won't. AxJ/JPY would be worth looking into more

 

Thanks for the great answer.

Sure you are right, the EUR/USD is pretty crowded. Probably the best is to wait until December. Just thought that there a two, more or less, possible events in the near future that could play in the favor of a short: the possible FED interest rate increase and the further monetary easing of the ECB. Since these events should be partially independent from one another that could push the probability a little bit.

You are right, on the USD/JPY. Probably much better to watch the AxJ/USD pairs. An especially interesting opportunity could be a further devaluation of the RMB/USD in my opinion. It could be a nice risk reward trade, suitable for an options play. There are options available on the CYB ETF but unfortunately only until April 2016. Do you have any thoughts on that pair?

 

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