Last week I said on Fast Money that the way to play the Swiss National Banks letting the Euro peg go was to BUY EUROPE, but hedge the currency.
The easiest way to buy Europe is to buy Germany which you can do through the EWG (quote). The EWG has you long Germany but in USD terms. On the other side I suggested the ECB meeting this week would only pressure the Euro more and I wanted to neutralize my currency exposure by being short the FXE. The FXE tracks the USD/EUR rate.
After more than we could have expected from the ECB, we have now moved 6.2% on this pair in 5 days. This is an extraordinary move considering that the currencies are at extreme levels. The DXY Index is at an 88 RSI, While the Euro is at a 13 9d RSI. Take the money and run.
European equities remain interesting both for their relative value on P/E but also EPS momentum that is better because of the currency. Don’t lose sight of this driver to EU earnings, a lower bar on comps than SPX and also neutral positioning which has to see more allocation flow.
Greek elections this weekend are a place to pause even though I believe there will not be a destructive outcome. Syriza party may emerge victories but they will not have a majority that will allow them to push for a referendum vote.
Tactical call is to watch until Wednesday and re-engage on a long EWG, unhedged position.