Thursday, July 7, 2011

Citigroup advises to sell EUR/CAD

The market is short on Canadian dollar. The reasons of such negative sentiment about loonie may be various: investors may be worried about US economic weakness that may affect Canada’s economy or about Canadian growth itself.

Euro’s story is different. The bullish players look forward to more ECB rate hikes in 2011. However, the euro zone’s problems are still unsolved: there’s high pressure from the rating agencies that are issuing warnings about Greece and Portugal. In addition, many economists think that the recent agreement on Greece did nothing but put off more drastic measures needed to overcome the crisis.

Analysts at Citigroup think that the euro area’s issues are likely to intensify, while there may be some unexpectedly positive data from Canada, for example, from US employment report that is released on Friday. In such case Canadian currency will benefit not only from its ties to the United States, but also from the improved risk sentiment.  

According to Citigroup, it’s necessary to sell EUR/CAD at 1.3850 stopping at 1.4160 and targeting 1.3050. The strategists advise to hold position for about 2 months.

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