Binary bets of the week: Eurozone Limps Over The Line

by Dave Evans of binary.com

Eurozone Limps Over The Line

It was a big week for the Eurozone, with Friday seeing the release of GDP figures that could confirm a triple dip recession. Thankfully the economic came in better than expected…just.

Eurozone Flash GDP rose by 0.2%, slightly more than the forecast of 0.1%. This is largely down to France’s GDP rising by 0.3% as Germany’s GDP limped over the line at 0.1%. There were some strong performances in peripheral markets such as Greece and Spain, with the former expanding by 0.7%.

Markets greeted the news with something approaching indifference, with the euro barely changed against the pound on Friday. Yes the Eurozone avoided a recession, but this matters little when growth is still sluggish in the its core powerhouse Germany. Some analysts also pointed to the fact that French growth could be accounted for by the large increase in government spending and without this, activity would be stagnant at best.

This narrow avoidance of recession could be negative in the long run as it may lull political leaders into thinking their reforms have done enough, when bolder reforms are required if the Eurozone is to keep up with the UK and especially the US. The Germany economy is not exactly staring at the abyss, but neither is it doing a roaring trade.

EUR/ USD daily chart

The EUR/ USD dropped again on Friday, partly due to uninspiring European data. However, the main cause of the downside pressure was more the ongoing strength of the US dollar which was emboldened by stronger than expected retail sales and import prices.

US Dollar Index

Until the US dollar shows signs of reversing its long term up trend, the euro will have limited recovery potential even if the Eurozone continues to creep back towards growth.

Against the yen however, the euro has at least a chance of pushing higher even if the euro itself stands still as the yen continues to weaken on its own accord. Japan recently rocked markets by increasing its asset purchase program at a time when the US and UK are withdrawing theirs and the ECB is still going through the gears. This will have a dilutive effect on the yen, as will planned future pension transactions.

EUR/ JPY daily chart

Therefore a two pronged attack may pay dividends.

Trade 1 EUR/ USD Lower

A good way to capitalise on the euro’s weakness and dollar’s strength is a LOWER bet on the EUR/ USD predicting that the EUR/ USD will continue to weaken and close below 1.2350 in 45 days time for a potential return of 150%. Or put another way, betting that the EUR/ USD will close below 1.2350 on the 29th of December could return £14.79 from every £10 put at risk.

Trade 2 EUR/ JPY Higher

As a partial hedge for the first trade and an attractive trade in its own right, you could bet that the EUR/ JPY will rise over the same period. These two trades may cancel each other out to an extent, but there’s a very real possibility of both winning and landing the double pay day. Even if the euro weakens from here, the yen itself is potentially even weaker, while the dollar is still looking tough.

A HIGHER trade predicting that the EUR/ JPY will rise and close above 146.00 in 45 days could return 142% if successful. Or put another way, betting that the EUR/ JPY will close above 146.00 on December 29th could return £24.22 from every £10 staked.

Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. Binary.com accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.