LIVE MARKETS-Who knows where the euro goes? Buy vol?
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WHO KNOWS WHERE THE EURO GOES, BUY VOL?
Analysts are struggling with where to call the euro in the coming months - there are a lot of potential catalysts that could send it in either direction. But in the last couple of weeks it's been pretty calm.
So what to do?
Goldman have a note out on Wednesday saying the euro is in an 'unstable equilibrium' and suggesting positioning for a pick-up in volatility is the trade.
The euro was last a whisker off $1.05 EUR=EBS having been gradually nudging stronger in recent weeks as the dollar weakens.
What could move it? Well there's lots.
Goldman flag optimism about a potential ceasefire deal in Ukraine and stronger fiscal support, especially from defence spending that boosts European growth, which could offer a "positive impulse to EUR/USD, which markets have already started to price."
On the other hand, if U.S. tariffs on Europe actually materialise, they'd hurt growth, and send the euro lower.
"This is why we think the current equilibrium for the euro looks unstable," write the analysts.
In terms of trades, they say "recent changes have already raised the risks around our forecast for more substantial depreciation," they currently see the euro at $1 in three months and $0.97 in six.
And as a result, they say that as there are a lot of potential drivers for moves, and as implied volatility in euro/dollar has declined since the start of the year - one month is at 7% down from 8% on Jan 1, and from a peak of 9.7% in mid Jan - they think long vol is the way to go. EUR1MO=
Though they phrase it in analyst-ese: "While it may take some time to realise these tails, long vol expressions still screen as an inexpensive way to position for a more stable equilibrium in the currency."
(Alun John)
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