Is the Short EURO Trade Over?

Treesdale Partners, portfolio manager of the AdvisorShares Gartman Gold/Euro ETF (GEUR) and AdvisorShares Gartman Gold/Yen ETF (GYEN), share their thoughts about the gold space.

 
The Euro has rebounded more than 8% to 1.135 off the current lows of 1.05. What has caused this? Bill Gross and Jeff Gundlach have both recently recommended shorting the frothy European bond markets. The five-year BOBL which is a German government bond has increased in yield from -0.15% to 0.086%.   The yield on the ten-year German Bund has increased in the same period from .07% to 0.59%! These are enormous moves in the interest rate markets and have been the impetus behind the Euro FX move.   Higher rates portend a stronger currency. Along with these capital flows, there are rumors of hedge funds exiting this somewhat “crowded” trade of shorting the Euro currency. So is this trade over?

The fundamentals remain the same. The European bloc still remains weaker than the U.S. economy. ECB quantitative easing has just begun and will continue into next year. When technical capital flows reverse fundamental macro trends that are in motion, it often provides great levels to enter or add to the trade.