Playing the euro devaluation
Posted on 27. déc, 2011 by Riskelia in Weekly Focus | Commentaires fermés
The bullish dollar theme is undeniably linked to the « risk off » mode. As illustrated by figures 1 to 3, the explanatory factors of the G10 Currencies vs. USD theme comprise always equities factors, commodities themes, worldwide inflation bonds and short term interest rates differentials. Among the different parities vs. the dollar, the AUD is most closely related to commodities factors (energy, base metals, precious metals and soybean), the CAD is most connected equities (S&P 500 et EuroStoxx), whereas the EUR is the most connected to the global inflation factor.
These short term dependencies may question the validity of the bullish dollar move as the crude oil is going through a slight positive trend, supported by a curve moving to backwardation. Besides, the US equities have held well in the recent weeks as the Dow Jones for example is close to switching to a positive trend. Yet, these factors are mainly short term drivers and must not hide the long term trend dynamic of the currencies parities. As showed by figure 4, the trend of the driving factors of the EURUSD taken in euro terms (i.e. World Inflation vs. EUR, Crude Oil WTI vs. EUR and S&P 500 vs. EUR) are all in strong positive trend, thus giving some comfort to the strong bearish EURUSD long term dynamic.
Shorting the euro against the dollar, the S&P 500, the Oil WTI and the Worldwide Inflation debt may be the most efficient way to play the ongoing euro broad based devaluation.
Figure 1: Explanatory macro factor of the EUR/USD parity
Figure 2: Explanatory macro factor of the AUD/USD parity
Figure 3: Explanatory macro factor of the CAD/USD parity
Figure 4: Riskelia’s trend indicator of various asset classes vs. EUR
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