I’m glad I closed out all my positions last week and my premonition that something was about to happen seems to have been proved correct. The monthly S&P 500 index is threatening to top out at the same level for the third time in 10 years and the events in Cyprus are threatening to send Europe into a spiral of contagion yet again. I’m wondering what small savers in countries like Spain, Portugal and Ireland might now be thinking? Will they also be running to the bank when it opens on Monday morning to withdraw their deposits?
The next question is which currency to buy in this environment? I’d avoid Europe completely and maintain a total EUR negative bias,and the GBP and CHF will also be affected, albeit to a lesser degree. AUD may struggle if risk-aversion rises and stock markets fall. Emerging markets will also be avoided so its to the big safe-haven USD we must look, and possibly also to the JPY? The market is undoubtedly short of Yen so we might even see a bigger-than-anticipated drop in the JPY crosses if risk-aversion really picks up.
I’m selling small EUR/JPY here at 122.40 and will look to add on any rallies back towards 124.00. Volatility will be high so I need to stay small and flexible. My target for this move is 112.00.