The Centre for European Economic Research (ZEW) is signaling the further plunge in downgraded Euro currency caused by the Greece's exiting threats. This has been evidenced in the German investor sentiment index followed by the decline in ZEW index. On the face of it, the ZEW points to annual GDP growth rising from Q4's 1.5% to about 2%. At the present situation, the index rose to +70.2 which is the highest level since July 2011 confirming the message from the hard data. The fact that it is strongly positive means that the majority of investors do not see economic conditions improving in future.
Hence, it seems like a further worsening deep tunnel is kept ready as a result of Greece crisis. Despite this serious noise in Euro, Overall there are significant downside risks to the overview on fall in the headline Economic Sentiment Indicator. But contrary to the above negative news the German consumers are responding pretty well to falling inflation, healthy labor markets and signs of sharp rise in exports amid weakening exchange rate. The economy is in good shape as we can see the stable labor markets with increasing wages strengthening consumers' confidence.
Strategy: Forex Synthetic Combination
Outlook: Bearish on Euro
Therefore, with the anticipation of further dip in Euro against major hard currencies international traders are advised to keep their portfolio intact by tight hedging. We advocate go short on Futures Euro contract versus USD and buy one lot of next month at the money EUR/GBP put option with high open interest contract. The rationale is quite simple, put option of EUR/GBP as British pound is most likely to dip hence one need not to maintain any margin where as US has got mixed bag of economic sentiments.
