One trade that we currently like is that of shorting the EUR/SEK. As you can see in the chart below the Euro has been losing ground to the Krona for most of the past year. It formed a large head and shoulders top and then consolidated in a long bear flag until recently breaking down. We think that this trade could go down to 9.5 over the next few months. (Click on chart to enlarge)
EUR/SEK Weekly Chart
We have been bearish on the Euro for some time now and lately the news has been going our way as many of the problems that were buried have been coming to the surface. Not only is Greece in shambles but Spain, Italy, and Portugal are also near disaster as their debt costs continue to go up while their economies languish. As the PIIGS continue to worsen there is more and more momentum building that could eventually kill the Euro. We doubt that this happens any time soon but if the PIIGS are unable to correct their course it will happen.
Along with our negative view on the Euro another thing that we really like about this trade is the extreme overvaluation of the Euro relative to the Swedish Krona. As you can see in the chart below the Euro is trading at a 42.58% premium to the Swedish Krona. While it has been outside of the 20% bands for a while now, we think that it is due time for a major correction on the weakness in the Euro and the relative strength of the Krona. (Click on chart to enlarge)
EUR-SEK PPP Chart
Disclaimer-In The Macro Trader newsletter we are short the EUR/SEK