The EUR/USD looks overbought according to our short-term financial model and as long-term implied volatility at the same time looks cheap, we recommend investors thinking about positioning for a stronger USD in 2014 to consider buying a 6M to 12M EUR/USD put spread for a move lower in EUR/USD. We are already proxy short EUR/USD via a long 6M USD/CHF call spread as one of our 10 FX Top Trades 2014, which we favour over a short EUR/USD position.
We currently also see big misalignments in the AUD/USD and AUD/NZD, which trade 1.8 and 1.4 standard deviations, respectively, below our model's estimates. This reflects mainly AUD seeming oversold against most majors. From a fundamental point of view, we still prefer to be short AUD/USD on a three-to six-month horizon and are short the cross as one of our FX Top Trades for 2014 accordingly.
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