Crisis In Europe Means Buy The EURO

Yes, this crisis in Europe means buy the EURO. Call it the contrarian trade of 2015. With a big no vote in Greece, it means replay of the Greek tragedy for Europe. End of European Union? Not exactly. It is only the end of Greek story in European Union. With Greece exiting the European Union, markets will be nervous for the coming few weeks giving currency traders to make good pips once again. Last week,  EURUSD gave a nice weekend gap trade which netted in 250 pips in just under 24 hours. Then it was time to short EURUSD once again again netting 250 pips. Today EURUSD has opened up with a weekend gap again. This weekend gap will be filled once again.

Big question: Will EURO plunge with the Greek Exit?

Indeed, the single currency initially plunged by more than a percent in early Monday Asia trading.

Yet there’s another theory floating around.

“The big trade has been to go long European equities and short the euro,” wrote Brian Kelly of hedge fund BKCM to clients Sunday. ” As European equities fall, investors will unwind this trade, which means short covering in the euro.”

This so-called pair trade is a popular one among macro hedge funds around the world. It is also a mandated move for some U.S. exchange-traded funds that seek to hedge out currency risk, by placing bets against the euro as it buys European equities.

“It is counter-intuitive, but if the strength continues (in euro/dollar from last week) everyone will be wondering why the euro did not fall. This is why,” said Kelly.

The hedge fund manager cites a stat from Goldman Sachs which estimates that for every one percent drop in the Stoxx Europe 600 Index, 6 billion euro needs to be covered.

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