EUR/AUD

I'm still in my Australian Dollar trade, with mixed results. my AUD/USD, AUD/JPY and AUD/CAD long positions are in the green, but the EUR/AUD short shows a loss right now. my rationalisation for staying bearish on EUR/AUD is that as the Complex begins to flash some bullish signals the initial knee-jerk trade has been to pile into the Euro. or perhaps Euro shorts are being covered more aggressively than other currencies. I personally don't see a lot to get excited about with the Euro, aside from it still retaining a pretty positive carry against the USD and the Nippy. (Joel made this point today. click here to read his post.) but the AUD still has a nice interest rate premium too. realistically one would expect both currencies to see lower rates down the road, but I have difficulty imagining that the RBA will cut to a lower level than the ECB in the foreseeable future.

the Euro is still over-valued, plain and simple. AUD under-valued. put the two together and you get a screaming sell order for the EUR/AUD currency pair. looking at the Big Mac Index again, we see that the burger costs US$4.37 in the EZ (EuroZone) but only US$2.27 down in OZ. when the Norwegian Krone was at a similar valuational extreme against the USD this Summer I suggested shorting the Krone. and while it took a while to get moving, I must say that I made a pretty good call on that one.

if there was something particularly positive to consider about the Euro then I'd certainly tone down my negativity. but I'm flipping mentally through the play book and I just don't see it.