Portfolio Composition:
Long EUR/CHF 42.5 Percent
Long MXN/JPY 12.5 Percent
Long CAD/CHF 12.5 Percent
Cash 32.5 Percent
I continue to play my long North America, short Japan and Europe. MXN continues to hold its gains from earlier in the week, though is off its high. I look to go short USD/MXN at 12.48. All in all, MXN should continue to make fresh highs as long as sentiment continues to improve as the recovery gains momentum. Shorting CHF (or GBP for the more aggressive trader) is the best way to play European weakness. EUR still faces the tough fundamentals discussed at length here at FX-Fusion, but it will continue to be buoyed by good news coming out of sovereign debt talks and further steps towards fiscal and broader monetary and financial integration. EUR/USD bears have been pressuring 1.30 as of late, but have been quick to take profits for fear of a big short squeeze a la the August 2012 "whatever it takes" comments from Draghi. For this reason, and for the fact that the Eurozone will eventually begin to benefit from the global recovery and further economic reforms in national economies, EUR/USD is close to bottoming out, with further downside limited to 1.25
CHF on the other had is still at historic highs after investors sent the Franc soaring in 2011 in a rush to "safe haven" assets. The SNB has reiterated its commitment to enforcing the 1.20 floor for EUR/CHF, and over the past year has accumulated over CHF 400 billion in foreign exchange doing so. CHF remains starkly over valued in PPP terms, and the demand for safe haven assets is dwindling. This reality has yet to be priced into CHF, which in my opinion is poised for rapid Yen style depreciation.
In sum, medium term, North America is the place to be as the US leads the global recovery among advanced economies. I will look to get long the EUR against JPY or even USD later in the year after the austerity programs have made their way through the European economy and Europe returns to growth.
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