* We are taking profit on our trade recommendation of being short EUR/AUD via options, initiated on 29 June 2012 at a cost of 41bp and a net gain of 90bp.
* We remain constructive on the AUD and bearish the euro medium-term but think that the risk-reward of being short EUR/AUD is not particularly appealing at this juncture as much good news is already priced in (Figure 1).
* Furthermore, Chinese June data out next week may disappoint and weigh on the AUD near-term, while Australian June employment data due on 12 July are difficult to predict, particularly after three months of large positive surprises.
*Conversely, extreme short EUR positioning, a lack of ECB policy action near-term and possible policy-clarity at Monday’s Eurogroup meeting may see some support for the euro near-term.
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Barclays Capital