January 7, 2012The One Solution To The Euro Crisis That No One Is Talking About
On October 25 I wrote about what, at the time, looked like an overvalued EURUSD (it was 1.3950). Zero Hedge had an article attributing the strength to ongoing capital repatriation by EU (primarily French) banks. My words
As long as there is Euro repatriation, the EURUSD will remain overvalued. It’s about day-to-day demand, not the backdrop of the news. I can’t predict how long this will take to wash out. My guess is under a month. I think the Euro is a big short.
I can see EURUSD = 1.3000
I covered that up Friday morning. (Note: This was a nice win, but, alas, there is “ugliness” on other parts of my sheet). I went for a long walk feeling pretty good about being disciplined.
About a mile into the woods I started having second thoughts. I turned around, came home, made a call and spent a good chunk of the realized FX gains buying expensive puts on the Euro.
Let me try to explain my schizophrenia. On one hand I don’t think the EU is going down without a fight. I think there is a decent chance that some additional steps are announced in the next few weeks that will give the appearance of an all out effort to save the Euro Zone.
Something significant could come from the IMF. We could get news from the US Treasury in the form of a draw down of the Exchange Stabilization Fund. There could also be additional measures by the US Federal Reserve. The ECB could announce un-sterilized bond purchases (Euro QE#1). There are a number of other possibilities.
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