Treasure Chest | Dec 16 2011
By Rudi Filapek-Vandyck
What?
Investors who agree the underlying trend in the global economy remains to the south in the short term are advised to go long EUR/AUD.
Background
Analysts at FXCM note there is increasing evidence of a spread of the euro-contagion to the east. They believe China will be the next big shoe to drop. If correct, this will have serious consequences for the Australian economy
FXCM believes it will force the RBA into a more aggressive monetary policy reversal in favor of further accommodation. This plus the anticipated downward pressure on commodity prices should pull the AUD lower relatively to the euro.
In other words: the euro should weaken as things are likely to get worse first before getting better, but the flow-on effect on the Australian economy should result in even more downward pressures for the AUD.
Addding to FXCM's conviction is the fact that while the euro-zone looks extremely vulnerable right now, this has already largely been priced in by investors. For Australia, however, FXCM doesn't think this is equally the case (thus more downside should be expected).
Investors Should Note
Going long EUR/AUD was the favourite trading idea at FXCM at the beginning of 2011. Alas, that turned out an non-profitable move as the trade failed to show any follow through during the year, but FXCM expects it will start to do so into 2012.
Technical limitations
If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.
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