Better opportunity outside the core currencies
Thu, Nov 23 2006, 22:04 GMT
by Stuart Frost, Rabia Bhopal, Nichola James, Trevor Williams, Kenneth Broux, Jeavon Lolay
As we approach year end, it has been very much a trend orientated trading period in emerging market currencies, set against a relatively subdued year for the G7 markets, with the exception of the Japanese yen. These themes look unlikely to change in early 2007, with the stand off in euro/US dollar between 1.25 and 1.29 set to persist. I still expect a break to the upside in euro/ US dollar, but I am under little illusion that it will represent anything of real meaning in terms of a major trend. Sterling/US dollar continues to struggle to hold 1.9100 and remains very contrarian in the way it trades, with lower support at 1.8700, time against price. It is why I tend to look for trades outside the core G7 block or often cross a G7 currency against a non-core currency, such as the one below which is Canadian dollars vs the Swedish krone. This is essentially the same trade as selling Swiss vs Swedish krone I recommended two week ago, but as far as I am concerned the game of trading currencies is about finding overvalued currencies and matching them against undervalued currencies. Everyone tends to focus on the most liquid currencies, but they do not always represent the most effective opportunities.
