Buy 3M 1X2 EUR Call-ZAR Put Spread: UniCredit

Quotes from UniCredit Research:

- Buy 3M (22 May) 1X2 13.50/14.50 EUR call -ZAR put spread for 1.19% EUR notional (spot reference 13.25).

- From mid-Dec until early Feb, ZAR performed well both against the EUR and even against the commodity FX bloc. A number of theories have been put forth to explain the outperformance: ECB's sovereign QE, a more credible-sounding SARB, as well as a pickup in fixed income inflows. But we think the argument that ECB QE flows to South Africa is overhyped. We doubt the extent to which the ZAR can sustain gains and remain insulated from weakening Chinese growth momentum.

- A risk to a long EUR-ZAR recommendation may come mainly from a sharp decline in US yields which would support high-carry currencies. Despite the dovish tone in the FOMC minutes, we do not foresee a meaningful decline in US rates in the near term with US data likely to still be strong on balance.