In a note to clients, BNP Paribas recommends a couple of trading strategies to trade the EUR from the short side during the second half of the year.
1- Trade policy divergence:
“We continue to favour staying short EUR vs the GBP and the USD as ECB policy diverges from that of the BoE and the Fed. The ECB’s indication that QE is more likely if the EUR strengthens has created a perception of asymmetric risk for the currency, and should mean continued interest in selling the EUR on rallies vs these currencies,” BNP clarifies.
2- Fund in EUR:
“The EUR should increasingly be viewed as an attractive funding currency for carry plays into higher yield currencies. We expect the EUR to trend lower vs the commodity bloc and higher yielding EM currencies during periods of stable and healthy risk appetite. In the options market, the EUR should increasingly be priced to correlate more with low-yield currencies like the JPY, and less with high-yielders like the AUD,” BNP adds.
